For Smart Financial Planning - Know Thyself and Thy Situation

by Clay Cotton - Date: 2007-03-12 - Word Count: 552 Share This!

"Know Thyself and Thy Situation" is a financial planning rule that applies to accounting for financial events that you absolutely know are going to happen and events that have a probability of happening. We're talking about both expenses that can and should be predicted and about unpredictable emergencies and catastrophes. Especially, you must insure for your likelihood of long term care, for which there is a 50/50 chance, but only if you plan to live past age 65.

For example, for younger folks, if you have more than just one child, the odds are good that at least one of them is going to need braces; both of ours did at $5,000 a pop. If you don't have a full dental plan, then you need to put money aside which, in some years, might force you to make tough choices about how to allocate your monthly or annual savings allotment. With the increasing chance you will need long term care at some point, be aware that long term care is expensive, believe me, and this planning must be started early.

The problem is that if you don't set aside money for things we know are going to happen, we are forced to either borrow (via credit cards or credit lines), or try to finance them out of cash flow or cash in our precious investments. And if the latter happens, dollars to doughnuts your investments will be worth less than when you bought them at the very time you must, must, must sell.

The same goes for things which only "may" happen, and with these events we all-too-often procrastinate or tell ourselves "It won't happen to me" stories. Phooey...

You'd be surprised how many people are invested 100% in equities and mutual funds, with no cash, no excess cash flow. This virtually guarantees that they will have to sell assets at some point, which can be a disastrous when you consider that a bad stock market can often last for 6 or 7 years.

When you're making a savings, investment and asset protection plan, try looking ahead at least five years, asking yourself what you know you're going to have to spend during that period, and whether you have the excess cash flow to manage those expenses.

But there's more - What about insurance coverage for those emergencies and catastrophes that can happen to the best of us.

Other important aspects of Know Thyself are your work and life habits. Are you a procrastinator? Are you disorganized? Do you have a short attention span? Do you have high stress periods where you can't concentrate on anything but your work? Do you go comatose when things go badly with investments?

If you answered yes to one or more of those questions, you shouldn't be managing your own portfolio. But if you are managing your own portfolio, it should be a super simple portfolio that allows you to invest and rebalance without too much brain work.

At the end of the day, knowing yourself keeps you from making financial plans that, because of your character or situation, are likely to fail.

Most importantly, cover yourself against the unexpected loss which could ruin everything, the likelihood of catastrophic long term care expense. It's not fun to think about, but it's essential planning that cannot be put off until tomorrow.

Begin today, please, for your loved ones' sake.

Related Tags: money, finances, investment, invest, retirement, financial planning, family, investing, investments, financial, long term care insurance, estate planning, assets, asset protection, financial plan, long term care

Long term care insurance activist, CB Cotton, writes for - The Online Baby Boomers Decision Assistance Center, where you get Free Long Term Care Insurance advice, comparative rate quotes and personal guidance, all while safely at home in your favorite pajamas and bunny slippers. Your Article Search Directory : Find in Articles

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