All Things Financial Planning Blog

Last month I wrote about a presentation I put together with the doctor comparing health and wealth issues and how similar the solutions were to become healthier and wealthier.  This month as a follow up I want to talk about the 10 biggest risks that our clients and patients have to deal with in life. When I ask my clients this question for the first time, they usually respond with a little bit of a quizzical look and ask something like: You mean losing money, being in a bad economy, or seeing their portfolio go down in value? In other words, they think that when we mention the word risk, it is automatically about money. In reality, good financial planning is mostly about your health. In my Top 10 List of Life’s Biggest Risks, seven of them are about health and relationships, and all of them may be life-changing:

1. Death – This of course will never be an impediment for those who die as you don’t need a whole lot of money after you’re dead. The problem becomes what happens to the family that’s left behind.
2. Human Capital – Otherwise known as your job, career, occupation or bread winning role. My father used to tell me that four out of 5 people are just three paychecks away from being broke. The important thing to remember is that if you viewed yourself as a machine that was designed to create wealth for your family, it would be the single largest capital resource that you have. Make sure you’re taking care of the machine physically and mentally.
3. Disability – Some people refer to this as living death, meaning you can’t do the things that you want to do but you still have to pay for them! According to the Council on Disability Awareness, an accident or illness will force one of five US employees to miss work for at least a year, one in seven can expect to be disabled for more than five years, and the average long-term disability absence lasts 2½ years. This obviously is a lot more important for younger people than it is for those approaching retirement with accumulated assets. The younger you are the more you need this to replace your human capital.
4. Health – As most of us know, it isn’t cheap. When you get sick and don’t have coverage, lookout! Hopes are that the new healthcare bill can alleviate some of these problems but we still have a few years to go before this is actually going to come into play.
5. Long-Term Care – Is something that usually doesn’t cross the minds of most people under the age of 40 unless they’re dealing with a parent who is struggling with health issues. It brings to light one of the scariest diseases of old age, Alzheimer’s. This is truly a terrible affliction affecting more than 5.3 million people. It’s the seventh leading cause of death in this country, with $172 billion in annual costs and about 10.9 million unpaid caregivers. We sympathize with those who have this disease but the hidden tragedy is that it tears apart the next generation of family relationships as the caregivers struggle to figure out who does what for the parents.
6. Being Sued – Appears sometimes to be the Great American pastime for the lazy or entitled. It’s one of the top concerns for those of means as they accumulate more wealth and worry that frivolous lawsuits may cost them dearly.
7. Lost Relationships – If you really want to feel a life-changing event, talk to anyone who has lost a loved one, gone through divorce, or has a new boss that they hate. Some of these situations you can see coming and some you can’t. When ever they occur, it can totally turn your life upside down. The only answer to this is to continue developing new relationships and have more people you can count on in those tough times.
8. Bad Advice – Comes in all shapes and sizes whether it’s about your finances, workplace issues, health issues or relationship issues. When you’re  in the heat of the battle, it’s tough to figure out the right thing to do. You can usually look back and see where your mistakes were, so try and stay away from those that steer you in the wrong direction and develop relationships with those you feel whose judgment you can trust. Learn by your mistakes. I found that’s my best learning tool (because I think I’ve made more than most!). I have heard many times that those who make the most mistakes usually have the most success.
9.  Fraud – In a post-Bernie Madoff world, fraud has risen to a whole new level. The Ponzi scheme that came out when the markets were in the process of melting down in 2008 was truly the salt in the wound of investors. It seemed no matter how smart or wealthy you are, you may be taken (even unknowingly by your friends and peers.) A friend of mine, financial planner Bonnie Kirchner, CFP®, recently wrote a book entitled Who Can You Trust with Your money? It is a tragic story about how her husband swindled millions of dollars from his financial-planning customers and she had no idea what happened. Even when it’s close to home it may be hard to detect. My suggestion is to read this book or one like it that will help you to protect yourself against fraud.
10. Negligence – I think one of the biggest problems we all have is benign neglect. We don’t address the issues that we know we need to address because we don’t want to or don’t have the courage. When you finish this blog (don’t even think about stopping now!) do three things with your money that you know you have to do but have been putting off.  Do just one right now and give yourself a time frame to complete the others. If you do it, reward yourself and if you don’t penalize yourself somehow. If you don’t do this then I guarantee the long-term penalty will be much worse than whatever you impose on yourself.

How do you like that list of life-changing events? I didn’t even include the stock market crash and having your 401(k) turn into a 201(k). I mentioned earlier that seven of those items pertain to health and relationship issues. In fact, a lot of these issues can be taken care of by writing a check to an insurance company. I will admit right here that I have never written a check to an insurance company that I liked, whether it be death, disability, nursing home expenses, healthcare costs, or an umbrella liability policy. It’s just that the alternative of not having insurance is worse and I’m willing to give up a little cash flow to protect myself and my family.

I certainly can’t solve these 10 big risks but I am hopeful I can at least get you to think if you’re protecting yourself from them. Whether you buy some insurance, foster your relationships with family & friends, steer clear of bad guys and advice, or improve your career chances, just do something to better your situation with life’s biggest risks. Then you will get to answer the ultimate question in the end. Did you take too much risk in my life or too little?

Dave Caruso, CFP®
Certified Financial Planner™
Coastal Capital Group
Danvers, MA