Are you protecting your savings? February 12, 2014While the daily headlines are filled with down housing and stock markets, there are still other pitfalls that can have an even worse effect on your savings. Events happen every day that wreak havoc on personal savings.What if… inflation begins to grow, you or loved one get sick, hurt or even worse? These unforeseen tragedies occur all the time. They may not be avoided but their effects can be limited. It just takes some careful planning and commitment to the plan.All you have to do is work your way through the realm of possibilities in order of urgency and likelihood. You may be able to remedy some of the possible outcomes immediately others may take time, planning and sacrifice but it is worth doing.Let’s work through some examples chronologically.Problem: Recently my car transmission broke. It could have been a water heater or a computer, you name it. This not so small expense could be handled in 2 ways. I can pay for it out of savings or if I don’t have any I’d need to pay with credit. Using cash from savings is a better choice because credit cost more.Fix: Start a small savings account for this type of situation.Problem: Many people are being laid off recently but this can happen at any time. It depends on your employer, not the overall economy. While the economy helps determine how easy it may be for you to get a new job you need to be prepared.Fix: You should have enough “cash” savings to pay 2 – 6 months worth of bills in case of a job loss. If your job is highly specialized or your company is facing rough times you may want more.Problem: You may have forgotten but over time prices of things tend to go up. This is called inflation. Last year we got a small reminder when gas prices rose quickly and sharply, but what if all prices rose in price that quickly? This does happen and we have a good chance of it happening in the next few years. Could you maintain your current lifestyle?Fix: This is a two-part fix. First, if you live below your means now when inflation happens you will be able to adjust without much trouble. Secondly has to do with your investments. A diversified portfolio has investments that will help here. Inflation-adjusted bonds, commodities, and real estate are a few that can help.Problem: One day you lean over to pick something up off the floor and you end up needing someone to pick you up off the floor. Health problems affect all of us at one time or another. What would you do if you were stricken with an injury or sickness that limited or eliminated your ability to work for some period of time?Fix: This is what disability insurance is for. You need to be sure you're covered for both short and long-term situations although you may self-insure for one or both, be sure you know that you are covered and how well. Work out the actual figures to be sure.Problem: You or one of your parents live an active life but your body (or mind) isn’t keeping up. You need a little more help than your loved ones can provide on their own. A home health care professional averages $20 an hour and for only 5 hours a day that’s more than $36,000 a year which is close to the cost of an assisted living facility and has increased at a rate of 17% per year over the past 4 years. How long will your savings support you or your loved ones and when it’s gone what will you live off of or pass on?Fix: You can protect your hard earned savings with a Long Term Care Insurance Policy. This type of policy used to be very rigid and basic but now there are many possible provisions that make it worth looking at including a return of unused premium rider and even policies that cover someone who is already receiving care. There are even tax incentives for some people. Why would you leave all of your assets exposed to this limitless expense when you can limit your exposure? You may also want to be sure that you set up a power of attorney and/or a medical power of attorney to address possible issues of incapacitation.Problem: We have reached the end of our basic “what if” timeline, however; the end of life is not the end of the financial issues. It’s just too late to do anything about them. Final expenses and final wishes need to be taken care of. There is a common excuse I hear. “I’m young. I don’t need to worry about that for years.” The irony here is that the younger someone is when they pass on, the more difficult and complicated it can be for those who are left behind. There can be leftover debt, a loss of family income, child custody and inheritance issues.Fix: To address all of these issues it may take several actions. A life insurance policy can alleviate monetary deficits. The policy can pay for lost income, final expenses and help to pass on wealth. To address your final wishes a will or trust should be set up and maintained.These are a few of the issues that could get you off track or ruin your plan. Remember you can address them one at a time and soon have them all taken care of. If you need help, have questions or want to have someone holding you accountable. You can give me a call or write me an email.