Every Cloud Has a Silver Lining
The past few weeks have had me thinking a lot, and worrying a bit too. I'm a bit of a weather geek and the barrage of hurricanes in the Atlantic has been both amazing and horrifying. Hurricane Harvey and the impacts on Texas, Hurricanes Irma and Maria and the destruction in the Caribbean Islands and Florida. Even the 16th anniversary of 9/11. These events have all been dramatic, catastrophic and life altering.
Twitter has been our go-to source for coverage on the Hurricanes, my wife and I sharing with each other both the awesome display of Mother Nature and the devastation left in the wake of these crippling storms. The videos on the news, the stories of rescues, even the pictures of the aftermath on Facebook or Twitter are incredibly awe inspiring and humbling at the same time. I couldn't imagine having my life turned upside down like these folks have. I've been trying wrap my head around the devastation, not only with the material things like houses and cars but also with the non-material things like HOW IN THE HECK DO YOU EVEN BEGIN TO PICK UP THE PIECES OF YOUR LIFE?!??!! Seriously, what do you do? It's gut wrenching.
Yet, I keep thinking of one quote in particular: "Every cloud has a silver lining."
Thankfully we've been spared here in the DC area so I see this as a chance to learn, an amazing opportunity to get and be prepared for when the gray clouds are on top of us. And when it comes to our financial worlds, I think we can apply the following three steps to help make the recovery from any life event a little easier:
Protect, first and fully
Life happens and the damage to the homes and automobiles from Hurricanes Harvey and Irma is estimated to be well into the billions. Visually that number looks like this: >$1,000,000,000. While floods are generally not covered by most Homeowner's Insurance policies, a fire, a fender bender, or a tree crashing through your roof is. Make sure you understand how your automobile and home/renters policies cover you in the event of a catastrophic loss. Or even a more basic loss. After all, what's the point of fully paying for insurance if it won't fully pay for your loss? This applies also to your income. If you get sick or injured and can't work, how will you pay for life, the mortgage, food, cars, clothes, etc.? Same goes for life insurance. Full protection is the right protection, and it's always the right thing to do.
Saving money into a 401(k) is a good thing. It's easy since our employer deducts it straight from our paycheck. We don't have to think about it, and automation makes us better savers. However, when life happens, accessing money in our 401(k) is not without consequences. Maybe we can take a loan, maybe we can't. And if we need more than our plan allows us to borrow? Penalties and taxes are owed. A better way to plan for a life event is to keep money in cash. 6 months living expenses minimum, 75% of your annual income is ideal. Having cash on hand provides flexibility for when life happens, good or bad. And we don’t have to worry about taxes, penalties or how the market is doing (read: selling low).
Get Organized Financially
I imagine watching/seeing your home fill up with water would have to be one of the most helpless feelings. Treasured memories, family heirlooms, even important financial documents, all of them destroyed. Picking up the pieces has to be devastating. Tracking down accounts, account numbers, statements, insurance policies, etc. is hard enough when life doesn’t have you in a headlock. The financial planning software I use creates a financial home base for you so you know where everything is no matter where you are, and no matter what's happened.
I think most of us here in the DC area can (thankfully) feel secure in knowing we probably won't feel the full brunt of a Hurricane. But life is not a straight line and we are all subject to other threats to our financial well-being. So focus on the factors you can control (protect-save-organize) and you could feel more in control when life goes a little sideways.