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Mitigating Risk in your personal financial life

Make it a priority this year to create plan to reduce risks which could derail your financial security.

Mitigating Risk

 In my personal and business life, I am the ultimate optimist, always finding a way to succeed, surmount obstacles and look at the sunny side of life. However, in my professional role as a financial planner and advisor for my clients, it is my
responsibility to look for risk which exists in my client’s lives which may derail their financial security. My job is to determine what risks exist and create an action plan to attempt to mitigate those risks.

Our unique approach to planning is to create a custom timeline and an action plan that orders priorities and lays out small bite-sized action steps for our clients to
execute. We stay in the picture and guide the client through the process. I tell people that we are the “devil on their shoulder” reminding them to get things done, setting deadlines and following up to see if execution took place.

Life is busy for most of us and all too often, our own personal priorities fall to the bottom of the list. The shoemaker’s children analogy holds true as well. Very smart people, sometimes folks who work in the financial services field leave their personal financial lives to last. And when it comes to tough financial decisions it is
easy to do what we call “the ostrich” and bury our head in the sand rather than
face some difficult discussions with our significant other or family.  As one example of this, did you know that 63% of Americans do not have wills?

Wills and trusts

All too often the reason for not having drafted a will is that a couple cannot agree on who they would choose to raise their children with a similar value system.  Another issue is the folks someone may choose to raise their children may not be the best people to handle a large sum of money to provide for the children’s needs. Sorting this out can be a touchy subject and too often the issue just languishes on the large “I know I need to dothis…”  list.

Insurance

Insurance coverage is one way of mitigating certain risks. If one has a family and an income is needed to provide for the family should the primary income earner
prematurely die, then certainly a life insurance policy is needed.  The stay at home spouse is often uninsured despite the costs it would take to replace his/her role. Disability, long term care needs, estate planning concerns and other risks exist for many people and certainly insurance has a place.

However, insurance is not the only answer and the risks in your financial lives may be more varied and the risks that insurance can mitigate may only be part of the solution. A good plan will take all the risks in to account, fit insurance in as a solution for some risks but have other risks in focus with a plan of action.

Term insurance is very inexpensive if you are young and in good health. However, a very small percentage of term insurance policies are ever paid out. But in the big picture, if you have multiple risks to mitigate, one easy and inexpensive
way to provide for your family if you prematurely die, is to purchase a term policy and revisit the issue in a few years to see if you should purchase permanent insurance.

Broader risks

  • Examples of risks which could exist in someone’s financial life are:
    What if the primary income earner loses his/her job, the family must move but the house is underwater?
  • What if a spouse is un-employed for a very long period of time? What type of reserves does the family have on hand?
  • What if my child is not doing well in the school district and I want to move but I owe more on my mortgage than my house is worth?
  • What if your mom or in-laws become frail and they cannot care for themselves? Who is going to step in to that role?
  • What if your mom has a stroke and cannot stay in her home but you promised her she would never go to a nursing home? Is she coming to live with you?
  • What if your college graduate cannot find a job and lives at home when you planned on selling the house?
  • What if your business or your spouse’s business falls on hard times and its value shrinks when you assumed the sale of this asset would fund retirement?
  • What if family members own a business or property together and a sibling goes through a messy divorce? Are the family’s assets at risk?
  • What if my dad remarries and the new wife may not have the purest intentions?
  • What if the stock market has another large fall? How secure is our portfolio?
  • What if your spouse is not a U.S. citizen? Have you factored in estate taxes for a foreign citizen?

The risks above are just some of the issues which arise when you really take a hard look at your financial picture.  Ignoring these risks and hoping all works out is not a plan. What happens to “other people” could happen to you.

Working with a professional in whom you have trust and someone who can look at the big picture, design a game plan and help you stay on course is important for most people. Delegating blindly to your spouse is not a solution and going on your own in an attempt to save fees is not always the right solution either.

Take stock of your personal situation. Be candid with yourself. Do you have at least the basics in place?   People do not plan to fail, they fail to plan.  Make it
priority to create a plan for your family this year.



 

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

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