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Stress-testing Your Financial Plan

Will your savings stand up to financial strain?


You know the saying - when it rains it pours, right? Seems like life has a way of piling up on you sometimes, and you just can't catch a break.

I'll tell you a personal story. In the space of two weeks recently, my car had to go in for repairs, I needed unexpected dental work, and my wife's car was hit and totaled by the insurance. (She's fine.) Oh and, then I got the flu. While on vacation. It was a rough few weeks for sure, but thankfully, my wife and I had fully stocked savings to cover the costs and soften the blow.

One question we hear frequently in our office is, how much do I need to save in my emergency fund? One place to start is making sure you have enough socked away to cover all of your insurance deductibles - at the same time. So, let's say, if your medical, car and homeowners insurance deductibles are $2,500, $1000, and $500, you'll want to start with a goal of at least $4,000 saved to cover those costs. It might sound unlikely, but your spouse could need surgery, you'll have a fender-bender and then one of those crazy Kentucky windstorms will rip half the shingles off your roof - all in the same month. I've seen these things happen.

I've also seen new clients come in who don't know what their deductibles are. So let's take a few minutes to talk about stress-testing your financial plan. Dig out your insurance policies, or go online and download them, and write down the details of each plan. Add up your deductibles and then cross-check that with your emergency savings. If you're covered, great. Maybe your goal now is to save up to the out-of-pocket max listed on your health policy. If you're a little (or a lot) short, make hitting that break-even number a priority.

And please - do this before your kitchen stove catches on fire. It's always easier to be proactive rather than reactive when it comes to unexpected bills. It'll help you sleep better at night, I promise. Make sure that when the floodgates open and you have to pay up, it's an inconvenience, not a financial disaster.

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