Friday, September 7, 2007

WealthSpa: Are you missing the basics of Financial Planning

When I create financial plans for my clients, whether they have a net worth of negative, or seven figures, there are a few tips I give to every client. These basic fundamentals are requirements for every individual and family, regardless of your current phase of life or situation.
Check out below to make sure you have these basic fundamentals in place, before you even start worrying about investment portfolios or retirement plans.
Emergency Fund. You should have cash set aside to pay for emergency expenses, or cover you living expenses in case of job loss or the collapse of a business. These funds need to be easily accessible, and have little to no risk (so not stocks you plan to sell). How much you need exactly depends upon how many people in the family earn income, your tolerance for risk, and your living expenses. Most people should have three to six months of living expenses set aside in this cash account.
You may not need life insurance, but everyone needs as much liability insurance as they can afford. Liability insurance protects you and your assets from lawsuits, for your (alleged) actions or non-actions. For example, from a car accident slip and fall on your sidewalk. Liability insurance is part of your automobile, homeowner's, renter's, and even in a separate umbrella insurance policy. If you don't have many assets, this insurance is still valuable. First, if you loose a lawsuit, they could go after your future assets and income. Second, the insurance pays not just for the damage, for the lawyer to defend you. The more insurance you have, the better lawyer the insurance company hires for you.
Healthcare Directive or Power of Attorney for Healthcare, and Power of a Attorney for Financial Purposes.
You may not need a full estate plan (will or living trust), but everyone, even 18 year olds, need to plan for their incapacity. If you are in a coma or unable to make decisions for yourself, you will need a person designated to make those decisions for you. This person or persons will be able to make decisions about your healthcare and handle your finances. These documents are necessary to protect your family, keep your loved ones from fighting, and protect yourself (especially for when you wake up).
Take Action
Take one action step on either setting up your Emergency Fund, obtaining Liability Insurance, or getting your Healthcare Directive. That may be opening an account, calling your insurance agent, or contacting an attorney.
Elizabeth Potts Weinstein, CFP®, JD, the "Money Maven," helps women achieve their most important life goals through strategic financial planning, coaching, and education. For a free Special Report, How to Avoid the Top 10 Money Mistakes, go to http://www.thewealthspa.com.
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