In life, things often change in a heartbeat. Unexpected life events can have serious financial consequences if not planned for. Whether it’s a medical emergency, job loss, or natural disaster, being financially prepared for life’s unexpected events is essential. The right planning can make dealing with unexpected life events less stressful, ensure you have proper cash flow, and even protect your wealth in the long term. In this guide, we’ll break down the importance of understanding unexpected life events and how to best plan for them.
What is an Unexpected Life Event?
Before we dive into strategies for dealing with unexpected life events, let’s first establish what situations you should financially plan for and why they’re important.
Death
Although it is not easy, have you ever imagined a scenario in which a loved one suddenly passes away? What would be your financial plan? You may be left with a large inheritance. You may also have not been the main financial planner of the family. How would you go about accessing funds in a bank account or trust fund, for example? Without proper estate planning, which we’ll discuss later, you could be left in a financial situation that is tough to navigate.
Divorce
Divorce can be a financially destabilizing event, often requiring the division of assets, legal fees, and more. When you factor in wealth, you must consider the complexities that come with dividing assets, such as real estate holdings, investment portfolios, and business interests. So, how can you best navigate this unexpected life event? For starters, a robust financial plan can be a major asset in helping smoothly navigate the significant life transition that comes with a divorce. It’s crucial to assess the impact of asset division on your long-term financial goals, including retirement planning and estate planning. Additionally, understanding the tax implications of asset transfers can help you strategize effectively to protect your wealth.
Disability
Disabilities caused by illness or injury could strike at any time. Financial planning for this unexpected life event can help those affected maintain the best possible standard of living, even in the event of lost income or wages. While you may have significant assets, ensuring that you have enough liquid funds to cover the immediate expenses of an unexpected life event is important to consider. When assessing your investment strategy, ensure a portion of your portfolio is easily accessible.
Disagreement
Did you know that 50% of all business transactions are involuntary? Disagreements between business partners can potentially threaten the business’s future, and therefore your personal financial goals as well. That’s why it’s important to have a detailed buy-sell agreement in place that outlines the terms under which a partner’s share of the business can be sold or transferred, preventing potential conflicts, ensuring business continuity, and protecting your legacy.
Distress
Economic downturns, natural disasters, and personal crises like job loss or major health issues can cause financial distress and unexpected cash flow needs. This can be mitigated by proactive measures that allow you to access capital when you need it most. So, let’s discuss ways that you can properly plan for unexpected life events.
Strategies for Dealing with Unexpected Life Events
When unexpected life events occur, a solid financial plan gives you more than just peace of mind. For many, it is the difference between having the right amount of money in place and not being able to properly pass wealth down to their families.
Business & Retirement Planning
If you’re a business owner, ask yourself some of the following questions: Am I prepared to retire? Who will succeed me in leading the business? Do I need any support from my financial advisor? A comprehensive review of your business plan could be a great way to avoid any financial pitfalls caused by an unexpected life event such as death or disagreement.
On top of this, it is important to ensure you’re properly bankrolled for your retirement years. This will help you and your loved ones access money in the event of any unexpected life events which may occur in your later years.
Estate Planning
Another great strategy for staying one step ahead of unexpected life events is estate planning. This is a crucial part of any long-term financial plan. It involves creating legal documents such as a will, trusts, and power of attorney, which provide clear instructions on how your estate’s assets are to be distributed.
Without an estate plan, your assets could be subject to lengthy probate processes, potentially causing financial strain and uncertainty for your loved ones. On top of this, you may be paying more in taxes on your estate than you could with the right plan. For example, passing down certain assets to loved ones before death could help you receive different tax breaks.
It is important to regularly review your estate plan with your BIP Personal Wealth Advisor to ensure it remains up-to-date at all times.
Insurance Coverage
In some cases, insurance coverage can be the best way to deal with unexpected life events. Imagine a scenario such as a car accident or house fire. Without proper insurance coverage, the financial burden could be life-altering. Imagine if you and your family lost a vacation home to flooding, for example. Insurance could be the safety net that protects you and your family from significant financial loss due to unexpected expenses.
Consider life insurance in addition to traditional coverage such as home, auto, and health. If you’re the main earner of your family, life insurance can help keep your loved ones taken care of in the event of your unexpected passing or injury.
Partnering with a Trusted Wealth Advisor
On top of the strategies listed above, planning for life’s unexpected events can be difficult alone. At BIP Wealth, our holistic and empathetic approach to financial planning ensures that every client’s financial needs are handled with personalized care. From inheritance management to estate organization to financial education, we help individuals, families, and businesses navigate the waters of unexpected expenses and life-changing events—whether you’ve recently lost a loved one, won the lottery, or sold a business. Through expert guidance and risk management, our team of experienced financial advisors will help keep your hard-earned assets protected under any circumstance. To learn more about our team or speak with an advisor, feel free to contact us at any time.
Frequently Asked Questions
What is an unexpected life event?
Unexpected life events include things such as injury, divorce, disagreement, and more. Financially, these events can be life-altering.
How do I prepare for unexpected life events?
To best prepare for unexpected life events, it is important to have a financial plan in place ahead of time. This plan can include insurance coverage, income diversification, and estate planning to ensure you and your loved ones can access funds in times of need.
Who is the most unprepared for an unexpected life event?
Those who assume unexpected life events will not occur to them tend to be the hardest hit. It is important to assume you will need financial support at certain times of your life, even if you never end up needing the help.
What are some examples of unexpected life events?
Examples of life-changing events include death, divorce, auto accidents, and plenty more. These events could bring financial and emotional stress.
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