Regardless of your confidence, everyone needs a contingency plan?
On September 28th the Conference Board announced that its Consumer Confidence Index declined in September, after declining in both July and August. The Index now stands at 109.3 (1985=100), down from 115.2 in August with only 19% of consumers feeling confident about business conditions.
“Concerns about the state of the economy and short-term growth prospects deepened, while spending intentions for homes, autos, and major appliances all retreated again. Short-term inflation concerns eased somewhat, but remain elevated, these back-to-back declines suggest consumers have grown more cautious and are likely to curtail spending going forward.” read the press release from the Conference Board. Instead of focusing on the economy, let’s talk about how you can be better prepared to weather the storm, whenever it hits.
Think the Unthinkable
Consumer confidence lower in September again! Although confidence and positive thinking serves us well most of the time, it should not stop you from preparing for unexpected misfortunes such as job loss, serious illness, death, or divorce. As ugly as that sounds, it’s unwise to procrastinate or avoid making plans to get you through tough times.
Our firm is known is for asking tough questions when helping our clients develop a contingency plan. Whether you are financially secure or still building your nest egg, the following questions can help you begin preparation:
- How long can I pay my existing bills if I lose my paycheck? What expenses are required versus desired? How long will my paycheck continue if I am sick and unable to work? Do I have disability income insurance? What percentage of my paycheck will I get? How long can I keep my group benefits?
- Are my assets situated in way that makes it easy to for me or my family to identify?
- What are my financial obligations if I were to die unexpectedly?
- How much income would my family need to maintain the existing household?
- How long would my assets last if I need long-term medical care? Would my spouse have adequate income?
- Are my affairs in order in the event of disability or death?
Write your answers and be realistic.
Developing a Plan
You need to develop a contingency plan just in case calamity strikes. Your plan should be incorporated into your day-to-day financial decisions. If you have high mortgage, auto and credit card debt, you are at greater risk due to loss of income. As you make important financial decisions, ask yourself whether you can continue to meet your obligations even if you lose your job.
Create an Emergency Fund
Establish an emergency fund of approximately six months of living expenses. This fund will provide cash flow for short-term income loss and protect your retirement investments from the penalties and expenses of cashing out.
Also, it will protect you from creating more problems by using your credit card for emergencies.
Evaluate Your Insurance
It’s also important to look at your life and disability insurance options.
Do you have adequate life insurance benefits? How much of your life insurance is tied to your job? If your job is lost, do you lose the benefits? If so, consider a personal policy that provides the right amount of coverage. Do you have insurance that replaces your income if you become sick or hurt? A good disability policy should replace a minimum 60% of your income for several years, and possibly to age 67.
Some group plans provide benefits that are taxable when received. This could create an unexpected shortfall in income when it is needed so make sure you know how your benefit will be paid; taxable or tax-free. A rule of thumb is benefits paid with after-tax dollars will paid tax-free. However, if you, or your employer, is tax deducting premium payments, benefits will most likely be taxable. If you find your benefits will be taxable, consider purchasing individual coverage to make up the difference.
If you are nearing retirement, don’t forget to review the merits of long-term medical care coverage, known as LTC Insurance. This coverage is not cheap, but if you think self-insuring is the answer, be aware that even a well-funded retirement account could be depleted in a short time if you or your spouse needs nursing home or skilled care. Will your existing retirement plan cover the costs of the care and still provide a lifetime income to the healthy spouse? This question can best be answered by a professional experienced in this kind of planning.
Update Your Will (or Get One)
Update your estate planning documents such as wills and trusts to make sure they reflect your wishes. They should also provide instructions for your loved ones in case you become incapacitated and are unable to provide guidance.
It’s not easy or fun to think about worst-case scenarios, but things happen.
Your Financial Advisor
Since early 2020, we have experienced many changes and the latest reports tell us that consumer confidence is lower in September again! Most of us know someone who “had it all together” and suddenly become a casualty due to COVID. Whether COVID or something else, nobody is immune to illness and accident. The more you prepare your contingency plan, the better you will weather these storms and emerge with your financial plan intact.
OmniStar has been helping clients for decades and we see the difference it makes. Don’t underestimate a consultation with your financial planning professional. They will review your situation and help you develop a plan that meets your specific needs. If you don’t have an advisor and want to find out if our firm can help, click here to talk with one of our wealth advisors.
Sure, it can be uncomfortable and stressful to think about, but having a solid backup plan provides peace of mind and lets you get back to enjoying life.