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What to Do When Life Happens

February 13, 2015

Financial Planning for the Unexpected

This week’s Money-Guy podcast was inspired by the simple fact that life happens. Even though we try to plan for everything, we can’t possibly know what life is going to throw at us next.

So how can we financially prepare ourselves for life’s emergencies? How can we work in financial planning for the unexpected?

Brian and Bo are big on planning with an emphasis on being flexible, and they’re providing the steps you can take now to ensure you’re prepared for when life happens and you have to adjust.

How You Can Plan for the Unexpected

Brian has six recommendations on how you can get your finances in order before a major life event happens:

Create Emergency Savings

This is an absolute must — you need cash savings held in a liquid account that can help get you through any unexpected financial disaster. From an expense you weren’t prepared for to a loss of income, your cash reserve can get you through some tough times.

Brian and Bo recommend thinking about how long you might be out of a job to determine how much you need.

Maintain Insurances and an Estate Plan

Having an estate plan is especially important if you have children, as you want to assign guardianship for them. You should also have enough life insurance coverage that your family’s needs are taken care of in the event that you pass.

Avoid Being Life-Poor But Retirement-Rich

You should have some liquidity in the event that something unexpected does happen. While it’s great to fund retirement accounts, you’ll be glad to have extra reserves in a taxable brokerage account for when life gets hectic.

Be Flexible with Your Finances

You need to be flexible enough with your finances that you’re not committing to any one direction. Don’t be on the extreme end of the spectrum.

Know When It’s Okay to Scale Back

While Brian and Bo consider themselves hyper-savers and normally encourage others to save as much as possible, there are times when it makes sense to ease up. It’s more than okay to cut back on saving if your life circumstances necessitate it.

Find the Positives

When an unexpected situation arises, try to find the positive in it. As an example, think of the countless successful entrepreneurs out there that started their companies after being laid off. They decided to turn their unemployment into an opportunity. 

The most important thing when financial planning for the unexpected is to find the ability to pivot and adjust. We all will need to deal with some unfortunate situations and less-than-ideal circumstances throughout our lives. It doesn’t need to be the end of the world if you can prepare as best you can and maintain flexibility in your finances.

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