By Beth Henary Watson
Just over two years ago, my husband’s Achilles tendon ruptured while he was crossing a street in downtown Fort Worth. One does not expect this to happen when you’re leaving work.
Steve limped to the parking garage and drove home. The doctor booked an emergency surgery.
This was during spring break week of 2020.
One also does not expect the spring break holiday to turn into a 5-month school closure. But that’s what happened.
For several weeks I was the only self-sufficient person in our home (our kids were 3 and 5 then).
We’d done a lot of things right, but there’s no way to plan for everything that could possibly go wrong. Like a husband who becomes disabled temporarily right when a global pandemic makes everything 100x harder.
“Risk is what’s left over when you think you’ve thought of everything,” says Carl Richards, a popular financial planner and best-selling author.
In spring of 2020, the absurdly unpredictable sabotaged the prudent life planning efforts we’d already undertaken:
Life insurance? Check.
Disability insurance? Check.
Car and homeowner’s insurance? Check.
Umbrella insurance policy? Check.
Written will? Check
In-person schooling continuation insurance? Not available.
Earlier this year, I reviewed Morgan Housel’s book The Psychology of Money, which makes many brilliant points. Most critically, he provides plenty of evidence that unpredictable and random events happen all the time, and he pleads with us to over-prepare.
In that spirit, I had a plan to replace my older SUV in two years.
Sadly, my ride was totalled this summer when another driver failed to yield at a turn signal.
Around the same time, our deep freezer’s door was left open for two days and over $1,000 worth of food was ruined.
Insert Yiddish proverb: We plan, God laughs.
In my professional and personal experience, though, Patton’s philosophy of imperfect preparation beats fatalism every time.
I’d already been saving specifically to replace my car–wise if you’re driving an ‘03 Buick!–so what could have been a major financial shock was just a bit of a hassle.
We mitigated the cost of the freezer mishap by simply eating more out of our pantry. Didn’t the COVID run on staples teach us the value of having some beans and pasta on hand?
You, your friends, and your neighbors will likely suffer a spectrum of life upheavals, many of which will affect your finances.
Most of us can probably think of at least one person who has faced each of the challenges listed below. These are more trying than a banged-up car or ruined food stash:
1) Job loss
2) Death of a breadwinner
3) Lost Social Security income after spouse’s death
4) Forced early retirement
5) Disability
6) Illness
7) Property damage from tornado or hurricane
8) Inheritance falls through
9) Relatives become financially dependent on you
10) Becoming a caregiver
11) College costs more than planned
12) Taxes go up
13) Estate controversies
14) Employer relocates
15) Divorce
16) Pay cut
17) Financial scams
18) Trouble with business partners
19) Poor investment choices
20) Career obsolescence
21) Bad bosses or work environments
22) Psychological or physical abuse
23) Accident/injury
24) Lawsuit
25) Expecting one baby but having triplets
26) DUI charges
In our experience, clients who make more of an effort to plan for contingencies tend to fare better than those who don’t want to acknowledge the future.
It’s as much about mindset as about money. Purchasing term life insurance or having a will prepared is usually not expensive. Telling your child you can’t afford to pay for another year of college or a fancy wedding isn’t easy, but it also isn’t expensive.
A 2015 study by the Pew Charitable Trust found 60 percent of households had experienced a financial shock in the previous year. Certainly that percentage has been higher in subsequent years, especially 2020.
When it comes to having a financial buffer, even experts who insist we assign “every dollar” a job also promote the wisdom of emergency savings. Some call it saving for “unknown unknowns.”
Labeling an “emergency fund” or “savings for unknowns” has always been hard for me to get on board with. I like to have named goals.
To work around this, for several years I’ve had a “vehicle account” we fund monthly. It’s only been used to purchase cars, but it could be used for anything major that comes up.
If nothing happens for several years–though that’s unlikely–maybe I’ll buy a really nice car with cash when my kids are older and less messy!
We can account for all imaginable contingencies and still be surprised. Doing what you can to plan ahead and working toward growing your financial reserves are common-sense strategies to lessen risk.
“Saving is a hedge,” writes Housel in The Psychology of Money, “ against life’s inevitable ability to surprise the hell out of you at the worst possible moment.”
Beth Henary Watson is a Certified Financial PlannerTM professional with Corner Post Financial Planning.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through ICA Group Wealth Management LLC, a registered investment advisor. ICA Group Wealth Management LLC and Corner Post Financial Planning are separate entities from LPL Financial.
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