5 Financial Frights Every Adult Needs To Plan How To Survive
Written by
G. Brian Davis
Edited by
Amen Oyiboke
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The scariest horrors in life don’t come in costumes. They slash your wallet, often when you least expect it.
Every adult needs to plan for these five financial frights, so they don’t bleed you dry when they inevitably strike.
1. Job and Income Loss
Business owners and employees alike can lose their incomes overnight. And given the slowing job growth reported by the Bureau of Labor and Statistics (BLS), this fear feels especially keen at the moment. In fact, survey data from the Federal Reserve last month shows Americans’ confidence in finding a new job has fallen to a record low.
Financial Planner Scott Leonard of Navigoe warned that this comes with a secondary risk as well: being forced to sell your stocks at a loss to cover your living expenses. “In a recession, the stock market often falls just as the unemployment rate rises. The risk of losing your job is compounded by the risk of also being forced to sell stocks in a down market.”
Keep an emergency fund with three to twelve months’ living expenses, and consider keeping an unused credit card that you can tap in an emergency.
2. Prolonged Illness or Injury
Even the healthiest adult can succumb to a prolonged illness or suffer a major injury. These health crises also cause double damage, costing enormous healthcare bills while also potentially putting you out of work.
“Even if you’re young and healthy, health insurance should still be a no-brainer,” said Financial Planner Brian Harrison of SAVVI Financial. “Health savings accounts (HSAs) allow individuals with high-deductible health plans to save money tax-free for out-of-pocket health expenses, and invest that money for tax-free compounding returns.”
In fact, your HSA account can serve as a secondary retirement, given that it combines the tax benefits of both traditional and Roth accounts.
3. Major Home and Car Repairs
Physical items like cars and homes wear out and require repairs. Sooner or later, everything in them must be replaced, so budget for it.
Your home and car repair fund should actually stay separate from your emergency fund. Home and car repairs aren’t unforeseeable “emergencies” — they’re costs you can expect every year.
“As a general rule of thumb, set aside money for repairs equaling 1-4% of your home’s value each year,” said Adam Hamilton, real estate investor and CEO of REI Hub.
4. Prolonged High Inflation
Inflation can chug along at 2% for decades, then surge to 9.1% like the U.S. experienced in 2022. To this day, inflation remains elevated and has increased from 2.3% in April to 2.9% in August.
You can combat inflation by holding your budget steady as you earn pay raises, to save and invest more money in inflation-resistant investments, according to Frank Davis, president of New Era Financial. “Invest in assets that historically outpace inflation, such as stocks and real estate.”
5. Outliving Your Money
Living longer sounds like a dream, but it becomes a nightmare if you run out of money to keep a roof over your head.
“Lifetime guaranteed income solutions, like fixed indexed annuities, offer predictability and can safeguard you from uncertainty,” said Tom Buckingham of Nassau Financial Group.
Speak with a financial planner to set a safe withdrawal rate from your portfolio, and set aside as much as you can toward your nest egg during your working years.
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