Many contractors and craftsmen have heard this statement countless times in their training. It goes right along with “Measure Twice – Cut Once.” It is just as appropriate in personal financial planning.
With proper planning you should be able to minimize costly mistakes and avoid panic when temporary disasters strike. And temporary disasters occur on a regular basis. There are small disasters such as car or home repairs to large disasters such as the disability of a wage-earning family member. There are temporary disasters such as stock market declines and permanent disasters such as death of a loved one. Proper financial planning can help to reduce the effects of these disasters and to help speed recovery.
Here are a few steps you can take in this new year to prepare your family for future disasters: You should pay off your high-interest loans and credit cards and pay them off each month. There’s no sense keeping cash in savings accounts when they earn less than your loan interest payments. Then you should build a cash cushion in a money market account to pay for unanticipated expenses should the need arise – so you don’t have to run up those high-interest credit cards again.
You should have protection against early death or disability of the family wage earners. Inexpensive term life insurance and disability coverage can protect your family from the loss of needed income. You should have at least a simple will and a durable power of attorney to handle financial matters, and a living will and healthcare power of attorney to handle medical decisions. These documents can prevent major headaches and costs when these types of disasters occur.
You should have an accumulation plan for funding your “financial freedom.” Think of this money as a goose that lays golden eggs. The larger you make the goose the more golden eggs are produced. You can spend all the golden eggs each year and never eat the goose. In order to never eat the goose, the number of golden eggs must increase each year to keep pace with the ever rising cost of living. Therefore you should have a “financial freedom” income and spending plan for the golden eggs. Proper prior planning can help to optimize the growth of the goose and the production of the golden eggs.
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