Each Friday for ten weeks I am reviewing a chapter of David Bach’s Smart Couples Finish Rich. The introduction can be found here, the review of step 1 here, step 2 here, step 3 here, step 4 here, and step 5 here.
Now that we’ve learned about building our retirement basket, Step 6 teaches us how to prepare for more immediate worries by building our security basket. This can’t be an entire chapter just to say “save 3-6 months of expenses”, right? So Bach must have some more up his sleeve. But before reading the chapter, I really couldn’t think of what more he was going to talk about. But it turns out security covers a broad base of issues that I didn’t quite associate with money on first thought (I have a problem with not thinking “big” enough when it comes to finances).
Looking at Step 6, Bach reminds us that life is messy – you should hope for the best but prepare for the worst. The meat of the chapter is outlining 6 things to do right away to protect yourselves (and a description of how to do each):
- Set aside a cushion of cash
- Both of you absolutely must write a will or set up a living trust
- Buy the best health coverage the two of you can afford
- Protect those who depend on you with life insurance
- Protect yourselves and your incomes with disability insurance
- If either of you is in your 60s, its time to consider long term care coverage
Upon reading the chapter, I started thinking about which of these steps I was doing well, which I was doing passably, and which I really needed to focus on. My answers really reflected our current situation much more than Bach’s standard advice, which was okay with me. I liked that again the chapter surprised me and brought up a few issues that I don’t often think about. I am sometimes too much a “set it and forget it” kind of gal. And there are a lot of strategies in the chapter for meeting each of these goals as well, and reality checks on if your preparations are adequate enough.
I have set aside a cushion of cash. Not anywhere near what Bach suggests, which is a bare minimum of 3 months and in some circumstances up to 24 months of expenses. But I am indeed comfortable (for now) with the small amount I have set aside. I have a $1000 emergency fund, as well as about $2000 in “liquid” assets (the kids college funds and my long-term savings fund for house repairs) that in a true dire emergency I could get my hands on pretty quickly. That is more like one month of expenses vs three, and most of that other $2000 is untouchable to me except in the most dire of circumstances, but I am making a tradeoff to reduce my debt as quickly as possible and I am happy with my current decision on that.
The big one we fail on as a couple is a will. The cheap do-it-yourself and get it notarized type won’t stand up to legal scrutiny, I’m afraid. It seemed like enough when we were childless but now that we have kids, I think my spouse and I need to just bite the bullet and hire a lawyer and pay the money it costs to get it done right. Sigh. I know myself though, and I’ll continue to put it off until the credit card debt is wiped out. I resolve to at least set up a current and up-to-date do it yourself type. Maybe it won’t be the greatest but at least it is something.
Health coverage and life insurance are two places I really feel like we are doing okay. I’ll have a lot more to say about health coverage over the next few days, as we’ve suddenly been presented with options and choices, but I feel like we are making the best choice for our family as a whole that we have available right now. We also have an adequate amount of life insurance. It isn’t my ideal, but it is enough to give either of us several years to make any decision or changes to our lifestyle if one of us was to die, and would give our kids’ guardians an adequate amount of money to raise them if we both were to die. Our life insurance policies are independent of my spouse’s employer, and I am thinking about adding a second policy through his employer to supplement our coverage, because the rates are really really inexpensive. I haven’t decided on that completely though.
The last issue we as a couple really need to reassess is disability insurance (since we are in our 30′s the long care term coverage does not apply to us yet according to Bach). My spouse has some minimal coverage through his employer. He could pay to have more, and yes, it is very expensive. But the likelihood of him being disabled is higher than the likelihood of him dying, yet we are better prepared for death than disability. I hate putting it off any longer, but I think we won’t really be upping that coverage until the credit card debt is gone. Basically, we’re playing a betting game that my spouse won’t become disabled in the next year. I hope we win. Then we are going to have to look hard at our priorities and figure out what to increase our coverage to.
So… our security basket needs some work. But so does our retirement basket so its in good company! Knowledge is power and the more aware I become of potential shortfalls the more prepared I am to do something about it. I’ve learned so much already, that I feel like Step 7: Building Your Dream Basket will just be icing on the cake! Come back next week to find out about living your dreams along with me!