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Why Your Most Valuable Asset May Not Be What You Expect (Plus How To Protect It)

A topic we seem to keep revisiting this summer—whether in blogs, questions from clients, or in online discussions—is security. How do we ensure we stay safe, protect ourselves, our loved ones, and our belongings? Given the tremendous insecurity we’re all living with right now, it’s only human nature to worry about what’s important to us.

We reached out to Gillian Stoddard, who runs a financial planning practice associated with Northwestern Mutual, to allay some of our fears. When we asked what people can do financially to protect themselves, she told us that “Your most valuable asset is your ability to earn an income. Without that, you couldn’t buy your next most valuable asset,” like a home, for instance.

Stoddard recommends developing an emergency fund with the absolute minimum of 3 months of expenses in a savings account (though she recommends ideally 3-6 months of pay in a liquid savings account).  

For business owners, the numbers are higher— ideally 6-12 months of pay in a liquid savings account; the same goes for businesses themselves. As Stoddard notes, “Look at what was needed for many businesses during this pandemic!”

Read on to learn about some of her other key recommendations and please let us know if you have any questions not covered here! We hope to share some programming around increasing your financial security soon. 

    • Long-term Disability Income Insurance: If you become sick or disabled and cannot work for more than 3 months, this would provide an income until you’re able to return to work.
      • Most corporate companies have some coverage in their benefits, but it’s usually between 30-60% of your base salary, and depending on who pays for it – if the employer does, then you would be taxed on that as income when you need it, further reducing that amount. For example if you make 100k/year and you have 60% coverage with your employer paying for it, while sick or disabled for 3+ months, you would receive 60k/year, but that would be taxed as income since the employer was paying for it, so it would actually be more like 50k/year. Going from 100k/yr income to 50k/yr is a huge difference to live on. If additional medical or mental health care costs are needed and not covered by health care, then this could further impact.
      • Looking at Long-term disability (LTD) insurance to supplement current coverage and fill the gap to get as close to 100% total coverage as possible.
        • Depends on age, health, occupation, and income, among other factors and is not available for everyone.
      • For obvious reasons, it’s even more important for freelancers and business owners who do not otherwise have coverage.
      • See attachments and links for some Northwestern Mutual stats
    • Paying off debt. Not all debt is bad debt. Credit card debt is the worst you can have (aside from paying off a balance every month (that’s good to do)). But financial risk management is important when it comes to debt – if you were to become sick or disabled for an extended period of time, that would affect your ability to continue paying off debt, which could eventually start increasing that debt long term with interest. Furthermore, if you were to pass prematurely, it’s important to think about who that debt would fall on.
      • We often look to Life Insurance to mitigate that risk.
      • Prioritizing LTD over paying debt because it protects your ability to continue paying the debt off in the event of a long term disability or illness.

 

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