If you Google the top financial concerns of Americans, you will see several polls taken. The interesting thing is that the top three, though interchangeable, are fairly consistent: retirement and/or maintaining their current lifestyle, living paycheck to paycheck, and paying for healthcare.
Louisa May Alcott had it right when she stated, “I’m not afraid of storms, for I’m learning how to sail my ship!” Most of our greatest fears and concerns come from the unknown and understandably so. If you think about it, it is not only what you don’t know that can hurt you; it is also what you don’t know that you don’t know that can hurt you. Dad taught retirement courses through various universities for years. In the beginning he thought he could teach people all they needed to know in order to set sail, but discovered there is simply no way to do it. There is way too much information and too many variables. However, the foundation is reasonably the same for everyone.
It all begins with addressing a little question…What would happen if…
…you were forced to retire because of your health or simple circumstance?
…your air conditioner went out, fridge went out and car broke down all in the same month rounding out to costs of about $20K?
…and the list goes on…
Unfortunately, we cannot coach you through the logistics of your foundational plan in one article, but we can give you some food for thought based on the biggest gaps and mistakes we are seeing people make. Following are the top five of those, ranked by an extremely high in the level of importance.
- Are you a victim of the emergency savings fallacy? Many families get it right when they are just starting out. They figure out a way to tuck away 3 to 6 months of income in a savings account. The problem doesn’t start until about 10 years later… and then the problem with that becomes apparent - and begins to escalate. The common overlooked issue is that the amount of emergency savings they started with is vastly insufficient as their income and lifestyle has grown. Every year it is important to reevaluate your situation. What is your income? Do you need 3, 4, 5, 6 or more months of emergency cash?
- Are you too comfortable carrying debt? Most Americans are trying to pay off their home as quickly as possible while racking up 0% credit card debt and borrowing against their 401(k) to do it. The disparity is that we should be doing just the opposite. Despite the fact that you could be losing money and sacrificing your retirement with this strategy, think foundationally for a moment. What if you were laid off or forced to retire tomorrow? How would you pay off all of this debt? There is an extremely high chance you wouldn’t be able to refinance you home because you don’t have income. Even former Federal Reserve Chairman Ben Bernanke couldn’t do it when he retired.
- Are you over-insured or under-insured? Believe it or not, we have never seen a family come to us with just the right amount of insurance! That is a scary fact when you have worked with the hundreds of families we have. You could either be paying too much and way too much in some cases, or putting your family in jeopardy. I guess the better question would be…Would you rather be over-insured or under-insured? Just like your emergency savings, it is critical to reevaluate your insurance needs and current picture every year.
- Are you victim of theft? Today, there are more thieves of your money than ever before. Whether it is a thief in the true sense of the word like identity theft, creditors and law suits, or Uncle Sam; they can all get the best of your financial future. Unfortunately, we have found that many people don’t address these until it’s too late. In a way it’s like your health: You never know the real value of it until it is gone. Make it a priority to build you a fortress.
- Are you lost? If you were dropped in the middle of a deep forest with no clue where you were and without a map or compass, what would be your chances of finding civilization by the end of the day? This is what we do when we go through life without a budget. A budget is your map with a “You are here” sign. It helps you make good decisions on what you can and cannot do, and when. Don’t let it be a tedious task. Download what you spend every month from your bank and credit card statements and take a few minutes to categorize it. Before you know it, a year has passed and your map will have been created.
The foundation for a successful financial future is your budget, emergency savings, and insurance. The interesting thing about these three topics is that although they are the three things you need to have in order to protect your financial future, they are the three topics most people hate to address. I guess it is kind of like eating your vegetables when you are a kid. Let us help you grow big and strong!