A family member, a young boy yet to reach his 3rd birthday has inspired me and this piece. He went from a potential concussion to 3 weeks in the hospital, and today getting a lung deflated to remove a peach size mass. The resilience and strength that both him and his parents have shown is a simple reminder of what we are all capable of. There is now a path to full recovery, a chance to get back home.
To say this was all a bit unexpected would be an understatement. Sitting in the waiting room, scrolling through multiple pages of bills from different doctors, departments, and tests was already overwhelming. Once the family is through this marathon of getting back physically and emotionally, the stack of current and future invoices can very easily further complicate your situation.
I hope and pray that your family can avoid health scares from any children in your life. I am thankful for the care given and confident a normal healthy childhood is months away for him. Hug your kiddos a few extra times this week as I certainly will.
My catalyst to put some words on paper here is to mention we never know what life will bring, no matter how much we try to prepare ourselves. As fool proof as your plan is, you will have curve balls thrown your way. Your hurdles could be physical, emotional, financial or all the above. Author David Kekich notes that “Anxiety is caused by lack of control, organization, preparation, and action.” I understand there will always be life events that happen that are outside of our control that cause extra stress. Planning for unknowns is a strange concept, but in my opinion an important one. Today, let’s explore preparing your financial plan for the unexpected.
Risk Management
Insurance
Corporations do risk assessments and audits of their insurance programs on a regular basis. Individuals should do the same.
When is the last time you gathered all your insurance policies and got a refresher of what your coverage is and isn’t? Do you have an understanding what your deductible and out of pocket maximum is for your health insurance? Do you have personal injury protection or uninsured motorist coverage within your auto plan? What amount and type of life insurance is needed if you or your spouse were to have an unforeseen death? Do you have disability insurance and if so, what is your coverage? What benefits do you have through your employer in addition to what you have directly with insurance carriers?
This audit should include all of the above and more. The assessment will help you better understand two key items:
- The amount of out of pocket you will have if an issue comes up
- Potentially kick start evaluating if the cost and coverage is right for your family
Investment
Unexpected costs can come up in all different life stages, including retirement. So each of your savings buckets need to have the proper asset allocation that fits your specific goals. Understanding your risk and ensuring you are not taking on too much risk for any potential shorter-term needs is crucial to planning for the unexpected.
The thought of a recession happening again in our life is not a question of if, it is a question of when. History has shown we can survive economic and geopolitical turmoil. The question is how are you positioning your short-, mid-, and long-term buckets for success? Adapting your portfolios to both your individual circumstances and the market will help you manage risk and have the right resources available when you need it.
Saving
Emergency Fund
If you are new to creating a financial plan, you will quickly find out that everything is interconnected in some form. A budget may drive your travel plans, debt management may drive your cash flow, and so on… As you plan for the unknown and look to determine how much of an emergency bucket you might need, understand your out-of-pocket costs if your house floods. If you have health scare. Let that be the foundation of your emergency fund magic number.
Maybe you have the best insurance coverage out there and your cash bucket can be less, giving you the opportunity to invest your savings in longer term investments. The analysis of how much cash you need in an emergency bucket will be driven by your insurance coverage, number of dependents, job situation, other goals, and ultimately what makes you the most comfortable.
Saving to Save
The ability to use your short-term savings bucket for an unexpected expense to help your other goals stay on track is one way we can all prepare. If that preparation removed 1% of your anxiety about this unforeseen circumstance it is worth it. It may help you avoid derailing your debt management or allowing your lifestyle budget to stay in place. Being able to travel or eat out or whatever makes you happy will do nothing but help with the emotional side of any added stress.
The concept of saving to save is something that some people in my life would roll their eyes at (not naming names). The next level of any savings plan once you hit your emergency fund goal, have a balanced budget, payoff debt, allocate proper dollar amounts to retirement, education savings, etc. is simply save for no apparent reason. That money can be used for an unexpected cost or maybe it gives you the opportunity to start that business that you always dreamed about. Ultimately, just giving you flexibility. This concept is what differentiates the people who appear wealthy to the folks who are wealthy.
Final Thoughts
“Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor.”
– Morgan Housel, Psychology of Money
If you take a look at the past few years you can see the above quote come to life. A pandemic, astronomical stimulus and monetary policy in 2020 and 2021. To 2022 where we continue to see record inflation, a humanitarian crisis in Ukraine, and on pace for one of the worst years on record for the 60/40 portfolio. Build in room for error to help your plan stay intact.
Putting words on paper does not make my current situation easier. Nor should it sound like a resolution to anxiety driven from an unforeseen life event. Life is full of good and hopefully not many bad surprises. I have recently seen the strength of family coming together to do everything they can to support one another. You can never underestimate how resilient we can all be as we are facing a crisis. The truth is you can’t prepare for everything, and I understand that, but taking steps to better understand your risk and what you need to manage that risk will help.
Disclosures
Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.
This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy. Investing involves risk. Principal loss is possible.
Advisory services are offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama. ACA-2206-19.
