It Won’t Happen To Me

nice house If you’ve read my blogs or listened to my podcasts, you know I always try to look at the positive side of things. More often than not, things end up working out well, but we have all seen situations that don’t. We see others go through tough times but deep down we think, “it won’t happen to me.” I’m watching a friend go through one of those periods right now. She’s a divorced mother with children. Her job experience is in an area that would force her to travel continuously. This is not an option for her as a single mother. She is leaving a relationship she has been in since her divorce and is about to face a very difficult financial situation. She has no savings and no job.

It’s time to face reality. Any one of us could fall on difficult times. The question is, what can you do to insulate yourself?

1. Understand your financial situation. It is said that 1/3 of Americans (the wealthiest country on the planet) are one paycheck away from homelessness. This would suggest that many people are living beyond their means. We should all have an emergency fund. Minimally, that fund should be able to sustain you for six months if you were to lose your primary income source. If you don’t have access to those funds, you must begin to build this cushion. Do a budget and determine an amount of money you can put away each month. Treat it as a bill. This is more important than your cable TV, Netflix, or going out to dinner, so make it a priority.
2. The equity in your house can serve as a source of emergency liquidity. If you own a home and and its worth at least 20% more than what you owe on your mortgage, you may be able to get a home equity line of credit. The idea is to set up this account to use in the event you have an emergency.
3. Have a marketable skill that allows you to earn a steady paycheck. My wife was a byproduct of a horrible marriage. Her mother stayed with her father because of a fear of not having enough money to take care of herself and her children. My wife chose a professional to ensure that she would never be in the same situation. We are teaching our two daughters to never become beholden to someone else because of finances. They need to be able to take care of themselves. We are instilling this value in them.
4. At some point we may need to turn to others for help. It could be physical, emotional, or financial. Be sure you take care of the people closest to you. Your world can be turned upside down in a moments notice. You never know when that need may come.
5. Insure yourself against catastrophic expenditures. If you get sick, medical bills could wipe out everything. If a natural disaster occurs, your house or car could be destroyed. If you have assets and someone is harmed as a result of something you did or didn’t do, you could have liability exposure. If you are a breadwinner and the proverbial bus takes you out, what happens to your loved ones? My insurance professor in college always said “insurance is never a good deal, the house normally wins. Only buy insurance for those things that would cause you financial hardship.”

We should all expect the best while preparing for the worst. It’s great to live a nice lifestyle, just don’t fall into the “it won’t happen to me” trap by overextending yourself and assuming nothing will ever go wrong.