Financial Planning 101: Safeguard Your Biggest Asset

Financial Planning 101: Safeguard Your Biggest Asset

Financial Planning 101: Safeguard Your Biggest Asset

Many of my clients initially come to my office to talk about investments, budgeting, college savings, retirement planning, risk management and other topics related to financial planning.

Conversations typically run the gamut of issues related to financial confusion due to hearing unfamiliar jargon from an industry that thrives on the allure of wealth and success.

When it comes to obtaining financial security, too many people ignore their biggest asset: their career.

Yup, it’s your biggest asset in most cases. After all, it is the source of your income that pays the bills, provides you with cash flow, and gives you the ability to make important financial decisions. This all hinges on your job.

Yet when engaging in a conversation about their financial life, all too many people choose to discuss topics like asset allocation, risk management parameters, estate planning considerations and potential college costs.

But rarely is there a focused conversation about the root of such a great risk.

Recently, I had the following discussion with a new client, I’ll call him Tom (not his real name).

Me: “What are some of the big risks to your financial stability?”

Tom: “Well, certainly I know that if I die or become disabled at an early age, my family could be in serious jeopardy. But, as we discussed, I do have life insurance and my company disability plan.”

Me: “Yes, you do have life insurance that pretty much covers your needs, right now. The disability policy is a group long-term disability policy that requires Total Disability in order to qualify. It’s not great. Perhaps we should be investigating your ability to procure individual coverage. What other risks do you see?”

Tom: “I have health coverage and my property and car are adequately covered. I am fairly comfortable with market risk, so I don’t see that as a big risk. Am I missing anything?”

Me: “Tell me about your job, Tom. I know you work for a Fortune 500 company, with lots of benefits. But what about your particular industry? Are jobs going overseas? Are business units being eliminated? Are you hearing, reading or suspecting anything that might indicate that there are changes on the horizon?”

Tom stared at the surface of the table, searching for an answer. He took a breath and looked up.

Tom: “I know there’s no such thing as ‘job security’.” He made air quotes around ‘job security’. He continued. “One of our companies was sold and another unit on the West Coast has been cut in half. I guess I’ve been so busy working, taking care of my family and all the other things that absorb my time that I haven’t really thought about it.”

Me: “It’s completely understandable. Most people don’t take or have the time to look beyond their busy lives. So, consider taking a career inventory and focus on it. After all, without a job, your financial plan is not very meaningful.”

Tom: “Can you offer some idea on where to start?”

The areas that I suggested Tom investigate are as follows:
1. Know your industry. What changes are occurring and how sensitive is it to such issues as interest rates, unemployment statistics, foreign currency, technological changes, stock market changes, etc.? In other words, understand what’s going on, who the players are in your industry and the industry forecasts.
2. Know your skills sets. You might have had hot shot skills seven years ago, but have you kept up? Do you need to invest time and resources to sharpen skills, knowledge, and abilities?
3. Try and get insight as to what skills will set you apart. You might need to learn a language or emerging technology. Whatever you need to do to ensure your value, go after it with full commitment.
4. What are your company’s competitors doing? Who are the new players in town?
5. Are you building your network? You should never get too comfortable and stop meeting others and creating relationships that might lead to mutual benefit.

Certain aspects of your financial life can be put on autopilot, such as contributing to your company 401(k), automatic investment plans, auto-bill pay and choosing inflation protection for your risk management where appropriate. But this aspect of your financial life cannot be a “set it and forget it” mode. It needs your thoughts, attention, action and continuous monitoring and focus. After all, it represents your biggest asset.