“What if” are two very powerful words. They are exceptionally important when it comes to managing your finances. In fact, asking the What If question is key to proper financial management.
No one has a crystal ball. We can’t see what our future will hold. We can dream. We can set goals. And, we can plan. But, as this global pandemic has shown us, life doesn’t always go as planned. There are many families who probably didn’t ask important questions like: What if the economy shuts down and I lose my job? What if I become ill and can’t work? What if I need to look after my elderly parent? What if my kids can’t go to school and I still have to work? What if I need to access my long-term investments now?
Proper financial planning and seeking advice from financial experts can help you prepare for both unexpected changes in your life – and help you reach your goals. It won’t be a panacea but having a thoroughly thought out financial plan covering all aspects of your money will help you weather a financial storm that could unexpectedly wreak havoc on your well thought out plans.
“What if?” is a key question financial advisors of all stripes need to ask in each of the six areas of financial planning to help you be financially ready for what life bring you and your family.
- Financial Management: This area focusses on your current and future financial position – your net worth, cash flow and budget. You need to consider your future financial prospects when budgeting and planning future cash flows. A financial planner will consider potential income loss when planning future cash flows. Asking the what if questions will lead to strategies that will help protect your financial stability. These strategies could include building an emergency fund, having a line of credit you can easily access in times of need or buying disability insurance.
- Insurance and Risk Management. Insurance is key to lessening the financial impact on your family of all types of risk including death, disability, critical illness, or even car accidents and house damage or fire. If you have an unexpected turn of events, these different types of insurances can help provide some financial assistance.
- Investment Planning. Investment planning focuses on how to best manage your investment assets based on your individual situation. This is where an investment advisor needs to ask the right What If questions to ensure you are taking risk you are comfortable with. What if the market drops 20%? Are you comfortable with how much of your investments are in the stock market?
- Retirement Planning. This is where a financial planner focuses on your financial well-being after employment has stopped. A financial planner needs to ask you well in advance of your retirement what your hopes and dreams are for your retirement so you can build strategies into your plan to help you meet those goals.
- Tax Planning. Part of financial management is taking advantage of all opportunities to reduce the taxes you pay. Many financial decisions have tax implications. For example, if you lose your job, a “What if” you hope doesn’t happen, your financial planner or tax accountant should help you ensure that you are minimizing the tax hit of any severance pay or pension pay out.
- Estate Planning. What if I pass away? is a key estate planning question that has a lot of financial implications. You will want to have a Will so that your estate transfers to your loved ones smoothly. If you have a young family, you will want to address guardianship of your children.
- Legal Aspects. No one wants to think about marriage breakdown, but it should be a “What If” question financial planners discuss with their clients. Is there a need for a marriage contract or on divorce, help with financial support for a spouse or children? What if you become incapacitated and can’t make financial decisions? Is there a Power of Attorney for Property so that your financial matters will be looked after?
Getting good advice from a financial planner, an investment advisor, an insurance agent, a tax accountant and a lawyer can help you plan ahead for – or deal with – the dreaded What If scenarios. And, good advice will also help you put in place a plan to help you achieve your hopes and dreams despite stormy weather.