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Posted on October 19, 2018

Your Financial Crisis Checklist

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By Scott Ford, CEO, Founder & Wealth Advisor of Cornerstone Wealth Management Group

Life is anything but predictable. Whether it’s a natural disaster, political chaos, divorce, or a death in the family, upheavals like this can have serious repercussions on your life and finances.

As we go about our daily lives, we usually have little or no control over these kinds of unexpected events. Since life transitions and surprise circumstances happen to all of us, it’s important to prepare our finances in advance and be ready to take the appropriate steps to avoid making decisions you may regret in times of stress. Here are 7 steps that will help you avoid a financial crisis, regardless of what’s happening around you.

1. Avoid Making Decisions Under Stress

Regardless of whether you’ve lost a job, a parent, or a spouse, it’s important to take six months to a year before making any big decisions, such as selling a house or making a large purchase. Research shows that people are more likely to ignore long-term consequences when making decisions under stress.1 Even if you don’t feel like your decision-making is impaired, wait a few months to make sure you are considering long-term effects.

2. Don’t Sell Assets Without Your Advisor’s Help

Often, financial crises require immediate funds to take care of issues that arise. However, it is critical to avoid liquidating assets without the advice of a financial advisor. Selling investments and making withdrawals can create tax liabilities and may incur fees and penalties. Pressure to sell large assets like real estate can result in a lower sale value and sometimes contribute to unintended or costly tax mistakes.

Your advisor can help you evaluate all of your assets and decide which ones to liquidate first, even helping you delay the sale of larger assets so that you can get a fair price.

3. Consider Taxes, Penalties, And Fees

Investors under stress often sell investments without thinking and end up with hefty tax bills, fees, and penalties at the end of the year. It’s critical to understand the tax treatment of any withdrawal you make and the associated fees.

For example, if you withdraw funds from a tax-qualified retirement account before you are 59½, you will generally owe ordinary income tax on the distribution and a 10% penalty. However, some expenses are exempt from the penalty, so it’s important to consider whether your expenses qualify.

Many investments, like life insurance policies and annuities, may have substantial early withdrawal fees to consider. When you take into account fees or penalties, it may make more financial sense to liquidate a different asset. Work with your advisor and CPA to coordinate a strategy that will reduce the taxes, fees, and penalties you will pay.

4. Create An Emergency Fund

Having cash available will also help you avoid selling assets before you’re ready. We hear a lot about the importance of having an emergency fund, but 35% of Americans only have a couple hundred dollars accessible for a worst-case scenario.2 If you have to evacuate or pay for funeral expenses, two or three hundred dollars isn’t going to get you far. If you have money set aside for the unexpected, it’s one less thing to worry about in a disaster situation.

5. Get Appropriate Insurance Coverage

Do you have the right amount of coverage for life, auto, home, and disability insurance? Most people purchased an insurance policy years ago when their life was much different or their family was smaller. If you don’t regularly update your policies, you may not have enough coverage when your home floods or a loved one dies.

6. Seek A Second Opinion

In a time of grief, shock, or stress, your decision-making may be compromised and your mental state could be foggy. Unfortunately, there are people out there who take advantage of those who are at a vulnerable point in their life.

With financial decisions, just as with medical procedures, it’s important to fully understand the risks and benefits of any option you’re considering. If you are unsure of the service and advice you are receiving, reach out to other professionals for a second opinion before you make an irrevocable financial choice, especially if you don’t have a relationship with a financial professional.

7. Don’t Do Nothing

While it’s important to take your time when making major financial decisions-and this piece of advice may seem to contradict prior points-there is also a danger in doing nothing. Not taking action can be risky if your assets are invested too aggressively or are losing value. Being paralyzed by fear may only increase your financial stress. Evaluating your options and understanding the risks can help you feel more confident and informed.

If you or someone you know is facing a life crisis, or if you know that your finances are not set up to withstand a crisis, we’d love to help. At Cornerstone Wealth Management, we can walk you through our personalized, high-touch process to help reduce your risk, solidify your finances, and prepare you for life’s inevitable transitions. To learn more about how we can help, book an appointment online today!

About Scott

Scott Ford is CEO, Founder, and Wealth Advisor of Cornerstone Wealth Management Group, serving entrepreneurs, business owners, executives, and their families. The firm specializes in business liquidity strategies and SBA financing strategies. It is Scott’s mission to help his clients pursue financial freedom and live a balanced and fulfilled life.

Scott is a Wealth Advisor and Registered Financial Consultant (RFC). He was recognized as one of the 20 Rising Stars of Wealth Management by Private Asset Management magazine in 2008 based upon assets managed of $1 million or more per client. Since 2005, Scott has been an active financial technical analyst.

Clients often choose to work with Scott because of his experience with the challenges business owners and executives face, as well as his firm’s disciplined process. His personal and proactive approach is designed to bring clarity and simplicity to the complex issues of financial management. For over 20 years, he has been helping his clients define and pursue their own unique version of “True Wealth.”

Scott is the author of three books: Financial Jiu-Jitsu: A Fighter’s Guide to Conquering Your Finances, The Widow’s Wealth Map: Six Steps to Beginning Again, and New York Times Best Seller The Sustainable Edge: Fifteen Minutes a Week to a Richer Entrepreneurial Life.

He and his wife, Angie, reside in Hedgesville, WV, and have two wonderful children as well as a dog and a cat. In addition to spending time with his family, Scott is a voracious reader and enjoys woodworking, Brazilian Jiu-Jitsu, golf, hunting, permaculture, and beekeeping-basically anything outdoors.

 

 

1 Time. “Decision-Making Under Stress: The Brain Remembers Rewards, Forgets Punishments.” March 5, 2012. https://healthland.time.com/2012/03/05/decision-making-under-stress-the-brain-remembers-rewards-forgets-punishments/
2 Go Banking Rates. “69% of Americans Have Less Than $1,000 in Savings.” September 19, 2016. https://www.gobankingrates.com/saving-money/data-americans-savings/

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