One of the first things I learned as a newby in financial planning is addressing risk. Throughout our lives, we have grandiose plans of starting a business, investing to create a large portfolio, buying a home or simply (or not!) getting married and starting a family.
For example, in season one of MSN Money's personal finance reality show, I meet with Tom as he embarks upon his 15 month journey going from opera apprentice to international opera celebrity. However, all of the financial coaching I have given him may be moot if he faces a health-related, or life-changing circumstance. From day one, my concern was protecting his voice or his ability to earn income based on his talent.
A situation where he cannot get on-stage to earn his living and collect his paycheck, is a game-changer.
To protect us against the financial risk that floods, accidents, storms, break-ins and “the unknown”, we initially often look to insurance to cover these gaps. But what about protecting the money-making machine that brings home the bacon? Yes, that means YOU!
How does one go about this? Part of it has to make sure his savings and investments are working just as hard as he is. Thankfully, money never sleeps, doesn’t get sick or require personal time. By restructuring how he has divided his money between safe, conservative strategies to being more adventurous, he will give himself a better chance for preparing for life’s “ifs”, over time.
The other part is utilizing insurance. While Tom’s portfolio has the potential to grow, it will take necessary patience and time to grow to an amount that he can depend on without paying for insurance. However, modern insurance companies have created policies that combine disability, life, critical illness coverage in addition to tax-deferred accumulation of cash value used to supplement income gaps for the future.
Having a balance of insurance and investments help build sustainable wealth that withstand the challenges life throws our way.