The Amateur Financier

It’s Monday the Thirteenth!  Bad luck is everywhere!  Everybody panic!  Alright, Monday the Thirteenth doesn’t strike quite as much terror into the average person as, say, Friday the Thirteenth (maybe a film series featuring a supernatural killer and numerous scantily-clad coeds being slaughtered would change that), but while we’re on the subject of bad luck…

The simple fact is that bad things happen to us; as they say, ‘Into every life some rain must fall’, or any number of other cliches.  There’s no way to avoid it, so instead we have to look at how we can make it easier to get back on our feet when bad times strike.  In honor of the Thirteenth, here’s thirteen things you need to make sure that you’re ready when bad luck hits:

1) An Emergency Fund: A prerequisite for any emergency preparation, having money set aside specifically for the bad times that occasionally befall us all is vital.  I would go a step further, recommending that you create a step-like system of multiple emergency funds, to ensure that you can make it through any length emergency.  But even a simple savings account with some money to provide for an unexpected expense is a good start.

2) Cash On Hand: I mention this in the emergency fund topic I linked to above, but it bears repeating: occasionally, you will need access to actual, physical cash, usually because that’s the only payment medium being accepted.  (Think about the aftermath of most major disasters, from earthquakes to hurricanes.)  While you don’t need to carry a month’s salary on you at all times, a few hundred dollar bills (or the equivalent in your own local currency) in a secure but accessible location could make the difference if you happen to find yourself getting the short end of nature’s stick.

Ah, cash; always good to have a nice supply of you on hand.

3) A Road Repair Kit: If you have your own car, you probably already keep one of these in the back seat or trunk.  While you shouldn’t expect to bring your car back from a major crash (or even anything more severe than a flat tire), the ability to make minor repairs can, over the course of a lifetime spent driving, save you significant amounts of money (to say nothing of hours spent waiting for repair people to arrive).

4) Home Repair Supplies: On the same token, having the supplies (and the skills) to make minor repairs on your home can be a major time and money saver.  Don’t try to do more than your skills allow (particularly when it comes to potentially dangerous tasks, like electrical wiring), but things like patching a hole in the wall or fixing a minor leak shouldn’t strain your abilities too much.

5) Health Insurance: Ah, yes, there’s really no way you can talk about protecting yourself from bad luck without mentioning insurance.  If you live in the US, you probably get your health insurance through your employer; if not, you’ll need to seek out your own health insurance (typically at much higher prices).  It’s still better to have insurance than not, though, so shopping around for the best combination of price and service is usually your best option.

6) Life Insurance: Life insurance is less of an absolute; while it’s definite that you will die at some point (sorry to be a bummer), you only really need life insurance if you (a) have one or more people who depend on you for financial support and (b) don’t have adequate savings to provide for them when you’re gone.  If you’re young, unmarried, and have no kids, or if you’re already retired and have a sizable amount of money put aside for your family, you can do without life insurance, while the middle-aged guy with a wife and young kids definitely should get life insurance.  There are several types, but for most people the best option is a term life policy to cover your prime money earning (and family supporting) years.

7) Homeowner’s/Rental Insurance: You need a place to live, and while you’re living there, you’ll also need to insure your property.  Not only to help you regain all your stuff in case of a fire or other emergency (although, that is a plus), but also to protect you monetarily if there is an accident in your residence.  Which type you’ll need depends on whether you rent (rental insurance) or own your property (homeowner’s insurance), although in both cases, you should look for replacement cost policies (which will provide you with enough money to repurchase all your possessions) rather than an actual cash value policy (which will pay the (depreciated) cash value of your possessions).

8 ) Other Forms of Insurance (As Needed): I could probably have filled this entire list with different types of insurance, but let’s try to wrap things up.  You should also consider disability insurance (in case you are injured and unable to work), long-term care insurance (to provide for you in your old age), and if you have a car or other vehicle, automotive or other appropriate vehicular insurance (not only to protect your savings in the case of an accident, but also because it’s the law in many states).  Your exact insurance needs will vary according to your current financial situation, so do some research and plan accordingly.

9) First Aid Kit: Insurance is good and all, but sometimes you need a more immediate, non-financial fix.  Keeping a first aid kit or two (as well as the skills to use it properly) in your home, car, and possibly even your place of work will help when you or one of your companions inevitably gets injured.  Of course, you also need to know how to use your first aid kit, which brings us to…

10) CPR Training: Chances are that you have more than a few opportunities to learn CPR and other first aid techniques; from local community college offerings to training seminars provided by your business, you should be able to find somewhere to learn without a problem.  The trick is finding the time to attend; hopefully, the idea of being able to save your family members (and possibly revive some of those old Boy/Girl Scout memories) can help to inspire you.

11) A Will: Annnddd we’re back to the fact that you are mortal, and will die at one point.  (Unless you happen to be a Highlander, in which case I suggest you spend all your free time working on your sword skills.)  A will can help, by ensuring that your possessions and money will be distributed to your family and anyone else you want to inherit from you.  Unfortunately, if you only have a will (which is still more than many people have to stipulate their wishes) your heirs are likely to end up in probate court, while a judge decides what happens to your earthly possessions.  You can avoid this situation by having…

12) A Living Revocable Trust: The nutshell version of a living revocable trust is that it serves as a way of passing on financial or other assets to your heirs without having to visit probate court along the way.  You create a legal structure (a ‘trust’) that holds your assets, and transfer control of that trust to your chosen heirs.  You’ll bypass the probate system entirely, and make sure that there aren’t any problems when they inherit your property.  (While we’re on the subject of your last days on Earth, you might also consider setting up a durable power of attorney, to specify what health measures you want taken to preserve your life and whom you want making decisions about your health if you are unable to do so.  As with all of the suggestions on this list, it might seem a bit morbid, but better safe than sorry when the time comes…)

13) A Life Free From Regrets: Last, but far from least, you should do everything in your power to make sure that when you pass on, you don’t leave life with regrets.  From the things we wish we could have done to the unresolved fights with family and friends, there’s lots of reasons we might leave unfinished business here in the mortal coil.  It won’t protect you from bad luck, and doing your best to resolve these issues and regrets before you die will not make dying any easier, but having no regrets will hopefully give you a better sense of closure while you die.

There you have it, a lucky thirteen ways to protect yourself from bad luck.  Hopefully you won’t need to use the protections suggested here for a very, very long time, but as I’ve been stressing throughout this article, it’s better to be safe than sorry.  Good luck, everyone!

Risk is an unavoidable part of life.  No matter you do, no matter who you are, there is always the chance that your life will take an adverse turn.  Some of the risks that you will experience have a small potential loss (the risk that your digital camera will break, for example) while others have a the potential for great loss (the risk that you will experience a catastrophic injury and be unable to work).  Similarly, the chance that these adverse events will occur will vary, according to the type of risk, the precautions you have taken, and your own actions.  (For example, your risk of being injured in a motorcycle accident can be greatly reduced, if not eliminated, by not riding on a motorcycle.)  For a more comprehensive view on risk management, let’s look at four examples:

Less Severe, Low Frequency Risks

Example: The risk that your brand-new digital camera will break during the first year of ownership.  (Low risk because digital cameras are not very expensive, low frequency due to the (hopefully) high-quality nature of the camera.)

Best Strategy: Retain the risk; simply be aware that the risk exists, and take steps to prepare for situations where the risk can occur.  (With our digital camera example, have some funds set aside to buy a new camera, should it break and you need a new one.)

Less Severe, High Frequency Risks

Example: The risk that you could lose your golf balls while playing golf.  (Low risk as golf balls are fairly inexpensive (most of the time), high frequency as many amateur duffers have a tendency to lose their balls regularly.)

Best Strategy: Reduce the risk; cut down the frequency of loss if possible (in this case, by practicing your drives, for example) and minimize the monetary extent of the losses as much as possible (using cheap golf balls until you get better at the game).  If it’s impossible to reduce a particular risk, then simply be aware of the risk and take steps to retain the risk yourself.

More Severe, Low Frequency Risks

Example: The chance that you could contract a serious disease like cancer.  (More severe due to the fact that you could be facing huge monetary and health losses, low frequency due to the small statistical probability of getting most serious diseases.)

Best Strategy: Transfer the risk; these circumstances are the perfect situation where getting insurance to prevent huge monetary losses makes sense.  Health insurance for serious disease treatment, life insurance to protect your family if something bad should happen to you, and property insurance to protect your possessions all can be good choices for your circumstances.

More Severe, High Frequency Risks

Example: The risk of death or injury while sky-diving blindfolded during a thunderstorm (More severe due to the possibility of death, and high frequency of getting injured during the process.)

Best Approach: Avoid the risk; in situations where there is a high chance for devastating losses, the best course of action is to avoid the situation all together.  (If avoiding the risk is impossible, the next best solution is to reduce the risk as much as possible.)

A quick guide to all the situations discussed above can found in the graphic below:

I hope this quick guide to risk management planning has been helpful to everyone.