Everyone should have a smoke detector in their home in case of fire. Most of the time you forget it’s there and hopefully it’ll never go off — but most of us have an idea of what we’d do if it did. What if you had the same attitude towards your money situation? A plan to get you through a money emergency could give you confidence in knowing your family could cope with a financial or health crisis should the situation arise.
However, many of us aren’t certain we’re ready to weather any emergency. If your job disappeared, what would you and your family live on? How would the mortgage get paid? If the answer is, “I don’t know,” maybe it’s time for a checkup to find out what you could be doing to meet any emergency that should occur. You may find you’re in better shape than you think but it’s always better to be certain.
Here are four questions you can ask yourself. If any of them make you feel uneasy, you’ll want to talk to an advisor to help get yourself on track.
Are you prepared to withstand a financial setback?
While it’s not nice to think about, financial crises do happen. People lose their jobs or become incapacitated and can’t work, but you can be proactive in case such emergencies do happen. One proactive measure that you can take is to start or continue to build your emergency fund equivalent to at least three months’ pay. You can automate contributions to your emergency savings by using pre-authorized transfer services which automatically transfers funds to your savings account on a regular basis, for example monthly or bi-weekly.
Would someone be able to handle your affairs if you were unable to?
Whether it’s an injury that keeps you from working or a more severe illness that could leave you unable to make key decisions, the shock to your family will be hard enough. What they don’t need is any additional chaos if you have left your financial affairs unattended. In many cases, appointing a Power of Attorney (POA) could provide a trusted relative or professional the legal authority to manage your financial accounts so your family can be looked after.
Are you keeping yourself invested?
Volatility in the markets can cause fear and motivate people to consider cashing out of their investments. Although we saw markets dip in the spring of 2020, many stocks and mutual funds came back robustly. In fact, history has shown that markets tend to recover in the long run. If you had pulled out of the market in March, you not only could have suffered a loss on your investments, you may also have missed any subsequent growth. For example, if you are investing through a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA), it can be wise to save steadily through regular contributions which can make investing easy and convenient and help ensure you’re in a position to benefit from potential market gains. If you don’t have an RRSP or TFSA, now may be an opportune time to open one.
Have you spoken to a financial advisor lately?
Speaking to a financial advisor on a regular basis may help put your financial situation into perspective. For example, a sudden downturn may cause uneasiness unless you are comfortable knowing that volatility can be a natural part of the economic cycle. What’s more, short-term disturbances — although they can be frustrating in the moment — may have minimal impact on your ability to achieve your long-term goals.
Proper planning must always take into consideration unexpected events that can knock your strategy off the rails. Saving, investing and planning for the future are all interconnected. If one aspect goes awry, other areas of your plan may be in trouble. Remember that smoke detector? Just as you must renew the batteries once a year, the same goes with reviewing your plan to help ensure it is still on track.
One potential remedy is to consult with a financial advisor who can give you advice that may be suitable for your personal situation.