With the benefit of the past year in hindsight, it’s safe to say that most everyone has learned some lessons from the pandemic about planning for the unexpected. Both businesses and individual financial outlooks have been dramatically affected by the months of uncertainty and shutdown, with short-term risk mitigation and long-term planning for the next “black swan” event top of mind like never before.
The importance of risk preparation and having emergency funds on hand have come into stark focus in my retirement practice. I’ve helped many clients wrestle with the sudden losses and constraints placed on nest eggs and retirement accounts by the months of lost income and financial upheaval. As a general rule, the older and more established you are financially, the bigger hit you have likely taken from the pandemic.
As we near retirement age, with seasoned careers, savings accounts, and dependents, we’ve also become accustomed to a certain quality of life, with mortgage, debts, and holdings that may not have much built in wiggle room for sudden issues. I’m reminded of the quote, “Little kids, little problems. Big kids, big problems.” Whatever the stage of your financial life, focusing on debt to income ratio management with a set monthly or paycheck deduction for an emergency fund can help you to plan ahead for the next disruption, rather than scramble in the moment.
In my professional experience, and in my own financial life, most everyone can live with a little bit less. Whether it’s by cooking a few extra meals rather than ordering out or cancelling some of those premium channels you never watch, by setting up an automatic draft contribution to an emergency fund through payroll deduction or a checking account, you can build an emergency/rainy-day fund without even noticing.
Hopefully, an emergency need will never arise and those funds can be used for something fun down the road, but in time, you will have saved up enough capital to be prepared for whatever issues might come. It is often helpful to discuss with a financial advisor and get a comprehensive debt to income assessment for the best way to set up such an emergency deduction along with the most advantageous way to funnel and grow those funds.
As with all things, an attention on the to-dos and details can make all the difference to ensure the least impact on your current quality of life and greatest risk impact for the future. Reach out with any thoughts or questions to get started on preparing for whatever comes next.