You might understand the basics of Financial Planning. You spend less than you earn, invest in a variety of different investments and review your allocations regularly, and do not hold significant amounts of debt. While these things should all be applauded, one aspect of financial planning that is often overlooked is disaster planning.
Disaster planning in regards to financial considerations involves planning for financial contingencies that can impact you at any moment. While the exact nature of a disaster cannot be reasonably predicted, it is important to have financial reserves set aside in case events do happen.
Financial Planning Guide For A Potential Disaster
One basic recommendation is that you should have six months of expenses set aside in cash. That way, if something were to happen, you could pay for your expenses until you were ready and able to work again. While this is nice to have, you can often earn higher amounts by investing this reserve in stocks. As such, in some situations having an excessive reserve can be harmful to your financial position in the long term. Still, having a moderate amount of savings can be beneficial to you as it can protect you in case of disaster. As such, this is often thought of as a smart way to plan for a financial crisis.
Another way, to plan for a possible financial disaster, is to make sure that you have sufficient amount of insurance. What is surprising to many people is that the majority of bankruptcies are due to health related costs. These costs can be very significant and costly, particularly if you do not have health insurance. Often times, people tend to want to cover all illnesses and pay large premiums to have as small of a copayment as possible. Protect yourself for the large losses and limit your premium amounts by having large deductible but unlimited amounts of coverage in case of a serious financial problem or health issue.
Don’t overlook insurance on your assets. If real estate is a large part of your portfolio, then make sure you have a sufficient amount of homeowner’s insurance to protect your home. If artwork or other valuables such as jewelry are significant in amount, have insurance to protect these investments from possible loss from theft or damage.
Financial Planning Guide
Making sure you are properly diversified is important. Generally speaking, it is a good idea to expect any particular investment to potentially go bad at any moment. You should be adequately diversified in a number of different ways. Diversification by investment type is important. As such, make sure that you have a mix of equities, bonds, cash, and real estate. Consider holding precious metals such as gold and silver. Artwork is another way to diversify your portfolio to protect against financial loss. Have diversification in area as well as in type of investment. Do not keep all of your assets in just one country, and invest all over the world to protect yourself from currency risk. Diversification is the key in every financial decision you make. I hope this financial planning guide will be useful to you.