Working as a financial advisor can sometimes feel like being in a marriage. After all, you are deeply committed to another human being through good and through bad, through thick and through thin.
Some of my clients – including many successful women in the tech sector – have recently been let go by their companies or are finding themselves with reduced incomes after taking up new job options. These changes fall firmly into the ‘thick and thin’ scenario, bringing significant stress and anxiety to women I have worked with so closely over the years.
Like any good partner, I find myself spending long hours talking through the implications of these changes with my clients, as well as rethinking existing budgets to consider rising expenses that can no longer be covered by company stock awards or a decrease in salary. We discuss ways in which to revisit cost-of-living expenses and when and how to use emergency funds.
These are not easy conversations. However, I increasingly find that those clients who embraced my goal-focused approach, and were open to proper planning and budgeting from inception, were better prepared to face worst-case scenarios and, consequently, to reduce stress.
I call this having a ‘Plan B’.
Do You Have a Financial ‘Plan B’?
The past year has shown me that putting a ‘Plan B’ in place – even when it’s viewed as a grudge line on the budget – is the best tough love conversation a financial advisor can ever have with her clients.
When I wrote Corner Office Choices: The Executive Woman’s Guide to Financial Freedom in 2018 the US economy was going through a rough time. Major US stock indices recorded their worst annual performance since the global financial crisis and recession fears were swirling. Again, the tech industry was taking a battering. Many of these issues are still in play, alongside the uncertainty caused by a global health pandemic, rising inflation and, yet again, more recession concerns.
Fortunately, as I tell my clients, it doesn’t matter what life throws at you if you have planned for the good times and the bad; and if you are willing to roll with the punches when you need to.
As I explained in Corner Office Choices: “The process of planning is not a steady, straight path. You have to be nimble because things change. Sometimes life takes unexpected turns that require you to make different financial choices from the ones you planned on. It’s important to not get discouraged by the need to prioritize. Some things will happen now, while other things will have to wait. It doesn’t mean they’re never going to happen. The point is to make incremental progress wherever you can and be consistent.”
Be Realistic About Your Situation
Right now a clear majority of Americans – 63% – do not expect their financial position to improve in 2023, with many putting the blame squarely on high inflation. Other telling statistics from this November 2022 Bankrate survey tell us that 19% of Americans regard ‘paying down debt’ as their top financial goal for the year head, alongside 16% who are prioritizing budgeting, 13% who are saving for into those emergency funds, and 9% who are focusing on retirement savings.
Each of these goals points clearly to the fact that 2023 is expected to be financially challenging for American households. What is encouraging is that Americans from all walks of life are aware of, and talking about, different forms of financial contingency planning – which is what our ‘Plan B’ thinking is all about.
What is Financial Contingency Planning?
We often talk about contingency planning in terms of companies, which use data and insights to determine key risks and then seek to mitigate against these worst-case scenarios. It is, of course, absolutely possible – and, indeed, preferable – to apply this sort of thing to our personal wealth planning.
Planning around potential future risks and negative events is something good financial advisors do as a matter of course.
Taking out income protection insurance or individual disability insurance to protect your earnings in the event of ill health is just one example of contingency planning, as is asset diversification. Having an emergency fund to cover monthly expenses in the event of a crisis is another important consideration, which should ideally cover you for between three and 12 months.
Building these layers into your original ‘Plan A’ does not mean that you don’t wholeheartedly believe in the goals you initially outlined, or your ability to reach your dreams. But it does mean that if your core plan is derailed by global or natural disasters and unforeseen events that you can confidently turn to Plan B, C or D to protect you, your family and your lifestyle with as little disruption and anxiety as possible.
An Emergency ‘To-Do’ List
If you do find yourself in a situation where you are concerned about your job or unexpectedly have to put your skills back on the market, then your first step is to speak to your financial advisor about how best to weather the financial storm with as little disruption to your overall plan as possible.
Breathe in. Exhale. And then follow these ‘Plan B’ preparation steps:
- Track where your money is currently going. Be specific. Give figures.
- Reprioritize your goals in line with your current circumstances.
- Consider any investment you should be making in your professional skills to support your career ambitions or even a possible change in direction.
- Create a new budget that breaks your expenses into fixed and discretionary (and, yes, still allocate funds to support your goals).
- Revisit your current savings habits.
- Protect your credit score by managing high-interest debt. Take advantage of minimum payments, negotiate with creditors or even consider debt consolidation. If you can, pay down debt.
- As your situation improves, keep checking in with your budget and tweaking it to work for you.
- And never forget to top up that emergency fund.
Your Financial Partner
Above all, remember that you are not alone. I’m not a great believer in sitting behind a desk talking at my clients, but I can offer a comfortable couch. Join me for a coffee or a glass of wine, and let’s take some of the stress out of 2023 by finetuning your ‘Plan B’ today.
