Anticipating and planning for multiple scenarios is something lawyers are adept at when it comes to their clients’ best interests, but no one likes thinking about the possibility of illness, injury, or death when it’s personal. Imagine for a moment, the impact any of those events would have on you, your family and your practice.
Are you as ready as you could be?
No amount of planning can prevent difficult times, but in a moment of crisis the last thing you need is to be stressed about your finances.
So where do you start?
1. Build an emergency fund
An emergency fund is not for when your car breaks down, your computer crashes or the roof leaks. Unfortunately those events are the stuff of life, and being prepared for them should be built into your spending and savings plan right from the start.
Emergencies are the situations that are truly beyond regular day-to-day life; personal illness or injury that requires a period of unemployment, or the illness or injury of a spouse, child or elderly parent that requires your financial and emotional support. Those types of events are pretty hard to anticipate and plan for, but could seriously undermine your finances, peace-of-mind and ability to work.
The general rule of thumb for an emergency fund is to have an amount equal to three to six months of living expenses set aside, but a better more personalized way to determine your needs is to ask yourself: “If something happened to me or to my partner, would there be enough money to continue living as we do today?”
Some questions to consider when assessing how much your emergency fund should be:
- What are my expenses right now?
- Is my job secure?
- Do I have a partner or family members who could support me if I wasn’t working?
- Do I have disability insurance?
- What expenses are fixed, what can be reduced?
Figure out what you think your cash shortfall would be if an emergency arose. Now set a goal for how much you want to have available for your emergency fund. If you don’t have the money to set aside right away, build an automatic monthly savings program into your Spending and Savings Plan and start working towards your emergency fund goal. A high interest savings account is the best place to park these funds.
Another way to mitigate the financial impact of a crisis is to have the right amount and the right kind of insurance.
There are various types of insurance that can help provide some financial assistance in the case of death, illness, or disability. The first thing to consider is – do you actually need insurance? Some people may have sufficient assets, resources and income from other sources without having to rely on insurance; but for most people and families, some form of insurance is usually required.
While it’s unsettling to think about the curve balls that life throws at us, having an emergency fund and the right insurance coverage will help you sleep at night knowing that you and your family will be well taken care of financially.