These past few months have been a doozy. Hurricanes, wildfires, a mass shooting, political chaos, international uncertainty (aka North Korea getting feisty and who knows what the heck is up with Russia). Do you feel like you’re just waiting for the next shoe to drop?
Or maybe your life has been shaken up on a personal level. Are you going through a divorce, a death of a family member, or another major upheaval that has serious repercussions?
As individuals living our day-to-day lives, we usually have little or no control over these kinds of disasters. It’s sobering, really. And honestly, it can be quite discouraging and upsetting too.
But when you think “Greg Brown,” you hopefully think “control what you can.” While our world is seemingly falling apart, you can grab the reins of your financial life. Here’s your guide to getting your finances organized so if disaster hits you are prepared.
1. Stress = Bad Decisions
Let’s get academic for a second. Research shows that people are more likely to ignore long-term consequences when making decisions under stress.1 In other words, don’t go selling your house or cashing out your investments and hiding them under your bed. Take your time to work through the fears or worries that are causing you to think irrationally. Before your emotions go nuts, train yourself to lean towards the conservative side when it comes to decision-making.
2. Create A Safety Net
Why do you need an emergency fund? For emergencies.
Thanks, Greg. That was insightful.
But really. We all know what an emergency fund is, but how many of us actually have one? A ridiculous 35% of Americans only have a couple hundred dollars accessible for a worst-case scenario.2 If you have to evacuate or pay for funeral expenses, two or three hundred dollars isn’t going to get you far.
Peace of mind is hard to find these days, especially if you stay on top of current events. But at the very least, you can give your finances a leg up so the money is there if you need it. That’s one less thing to worry about in a disaster situation. How much should you save? There are many differing opinions on this, and it will largely depend on where you live, how many mouths you have to feed, and your debt load. That said, six months to one year of basic living expenses should give you some breathing room if disaster strikes.
3. Debt No More
If you are paying off loads of debt, you won’t be able to put much aside for your emergency fund. It may not be fun, but change your lifestyle so you can abolish that debt once and for all. That alone will bring more freedom and peace to your life. Do you really want to be worrying about making your next payment if the shit hits the fan?
4. Insure Yourself
Remember the golden rule: If anyone depends on your financially, you need insurance. It’s that simple. Do you know the nitty gritty details of what your insurance covers? Do you have the right amount of coverage for life insurance and disability insurance? Yeah, I didn’t think so. I get insurance questions from friends and family, usually after a death or near death of a close friend or family member.
Most people purchased an insurance policy years ago when their life was much different or their family was smaller. But what happens if your home floods and you find out your homeowner’s insurance doesn’t cover flooding? You’re screwed. Revisit your policies (home, auto, life, etc.) to make sure a disaster won’t kill your finances.
5. Document Everything
This is all about making organization a priority. Create a master list of what you own and include photos or video. If anything needs to be replaced, this will make dealing with the insurance company much smoother.
Have important contact numbers, account information, and personal information accessible and in a protected place, whether that’s in a safe or a fire and waterproof filing cabinet. If you need to make decisions or move without much notice, you’ll want to be able to grab passports and insurance information quickly.
Speaking of getting organized, it’s a good idea to have all your accounts (bank accounts, investment accounts, 401k accounts, 529 college savings plans, even mortgage balances) all in one place, updated daily. This helps you to know where you stand at any moment, in a disaster or just to keep tabs on your wealth. Not sure how to get all your accounts organized? We have a tool for that.
6. Make Use Of A Second Brain
And I mean mine. If you find yourself panicking about the state our world is in or if your personal life is imploding, pick my brain about how to avoid financial disaster. Get an objective, unbiased second opinion to help you protect yourself, understand risks and benefits, and avoid making irrevocable decisions.
Or, if you just want more tips to cover your ass for whatever comes in the future, I’m here for that too. What’s got you worried? Schedule a phone call and let me know. I may be able to ease the burden by giving some thoughts and recommendations.
For many people, a 401k is their largest retirement account. It deserves your undivided attention. Download our Ultimate 401(k) Guide for a step-by-step strategy to master your 401(k), including a prioritized checklist. It’s free!
Pathway founder and principal Greg Brown is a fee only financial advisor with broad financial planning and investing expertise. Greg’s financial advice has been featured in publications like Yahoo Finance, Bankrate, Investopedia (all articles here), Wall Street Journal, and USA Today. He holds a master’s degree from the University of Chicago and a mechanical engineering degree from Michigan State University. Prior to Pathway, Greg was a lead analyst at Morningstar and previously held engineering roles at Dell (including a US Patent).
Also published on Medium.