Protect from bad things

There really are only six things you must get right when creating a financial plan:

  1. Set your goals
  2. Protect against bad things
  3. Prepare for the future
  4. Enjoy the journey
  5. Give back to society
  6. Execute your plan!

Each step is important and I encourage you to do them in order. In this article, I will focus on step 2, which is protecting against bad things.

Bad things will happen in life

It is not a question of if, but when.

  • Car accident
  • Job loss
  • Recession
  • Fire
  • Illness

The list goes on. While money and planning can't solve everything, it certainly can help you ride out the storm. These five things will help protect you.


1. No bad debt

When bad things happen, the wrong type of debt can quickly make things go from bad to worse. With the right type of debt, you can survive and thrive.

  • Low-cost debt should be used as a tool.
  • High-cost debt should be avoided and eliminated.
  • The line between low cost and high cost is approximately 5%.
    • Keep debt with an interest rate under 5%.
    • Avoid and pay off debt with an interest rate over 5%.

Offense and defense

Eliminating bad debt puts you on a better path to good things and protects you from bad things. I show you how to have the right type of debt as a part of a free financial plan.


2. Access to money

You should have access to money three ways:

  1. Cash
  2. Ability to sell investments
  3. Ability to borrow money
    • If you have all three you are in a flexible position and have choices.

Keep two month's cash reserve in a checking account.

  • You most likely don't need a separate savings account.
  • You should learn to be comfortable with a solid reserve in your checking account.


3. Insurance

You need insurance to partially protect yourself from bad things. Consider having a high deductible on most policies. You need:

  1. Health insurance
  2. Car insurance
  3. Home / renter's / personal property insurance
  4. A personal liability umbrella policy
  5. Term life insurance
    • You likely need a 10 to 30 year term for 5x to 20x your annual income. With the right plan:
      • You should not need life insurance past age 65
      • You need less insurance over time, not more

Most other insurance should be evaluated with skepticism.

By answering a few questions I give you a better perspective on things to consider as a part of a free financial plan.


4. Legal

You must cover the basics. You must have:

  1. Will
  2. Living Will
  3. Healthcare Power of Attorney
    • These should be updated every 3 to 7 years
  4. If you are getting married, get a prenuptial agreement.
    • The right prenup will trigger the right conversations and create a stronger foundation to the relationship for both parties.


5. Cyber security

You must proactively protect yourself. You must use:

  1. Password protection
  2. Credit monitoring
  3. An organized view of your complete financial picture, with alerts
    • Your statements should be delivered electronically.
    • Your important documents should be kept in a secure electronic and encrypted vault.


Continue on to learn how to prepare for the future.

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