Using football as an analogy, it doesn’t matter how much money you make at work, or the rate of return your money is earning, if your financial plan does not protect you from events that can take away your income or your assets then you are at risk of scoring lots of points and still losing the game. After a statement like that you may be asking: “What do I need to do to win this game? The answer: Implement a perfect defense in your financial plan.
What are the risks? When I say risks, for the context of this article I am talking about events that, if they occurred, would be very difficult if not impossible to come back from with your own resources. These events would, for most of us, cause a financial hardship so significant that it would make winning the financial game all but impossible. The good news is that there are only a handful of such events and you can take steps to protect yourself from being financially ruined if any such event were to occur in your life. Here is a list of events that, if they were to take place, have the potential of significantly derailing your financial future:
- Significant Medical Expense
- Partial or Complete Disability
- Premature Death
Lawsuit – The biggest risk that we take every day is driving a car. With cell phones, texting, GPS, IPods, and all the other gadgets that we can no longer live without there are now plenty of things that can distract us while driving.
I don’t know if this has ever happened to you but there are times when I have looked down at my phone to do something “really quick” only to look up and realize that I have gone a block or more. If there happened to be someone crossing the intersection at this time it would have been a bad day for him and me. If I was found to be at fault in this accident which would certainly be the case because I was not paying 100% attention, I would be completely liable for the injured persons’ medical bills, pain and suffering, and lost income.
Let’s say this person was a 35 year old married father of two children that makes $100,000. / year. This individual, because of the accident, is now permanently disabled and unable to work. I don’t think it would be too long before I would find myself being contacted by his attorney suing me for his medical bills and the $100,000. annual income he used to bring home before I took him out while looking at my blackberry.
As a 35 year old man he would have 30 more years of working before retiring at the age of 65. 30 Years at an annual income of $100,000 = $3,000,000 of lifetime earnings that I have taken away from his family, assuming no raises or promotion over that time. This would be an open-and-shut case for the prosecution and every jury in America would find for the plaintiff and I would find myself looking at a $3,000,000 judgment. Since I don’t have $3,000,000 just sitting in my checking account I would be forced to liquidate everything I owned and then have my earnings garnished for the difference until the judgment has been satisfied. It is going to be very difficult if not impossible for me to accomplish my financial goals and wealth plan given that I will now spend the rest of my life funding a wealth plan for the family of the accident victim.
How do you prevent this from ever happening to you? In my next article I will discuss strategies that give us a strong defense against the unexpected. At Invesdoor™ I advise professionals from all walks of life to do just this and now I am happy to reveal some of my favorite tips. Stay tuned.