On July 9, 2012, a Chinese acrobat sought a new world record by walking a high wire more than 600 feet above the floor of a ravine in Hunan province. The wire was 2,297 feet long. The acrobat, Aisikaier Wubulikasimu, was blindfolded and walking backwards. He wobbled a few times and once had to pause and sit on the wire to regain his balance. Fifty minutes after he started and just a hundred feet from the other end, the wind picked up, fatigue took its toll, and he stumbled, failed to recover, and plunged to the earth.
Aisikaier wore no safety gear and had no safety net. He survived only because he had already passed the highest sections of the crossing and because he fell into trees and bushes that broke the fall. It’s something of a miracle that he walked away with minor injuries.
Managing personal finances sometimes feels like walking a tightrope, outdoors, in low visibility, with the wind picking up. It’s a balancing act where a misstep, a gust of unexpected expenses, or a wobble in commitment could send you into financial free-fall, with serious injury to your financial well-being awaiting at the bottom.
What can you do? The ultimate goal is to improve your ratio of income, expenses, debt and savings so that your financial path becomes more like a sidewalk than a tightrope. That transformation will likely take some time. In the meantime, you can seriously reduce both the stress and the risk of financial tightrope walking by ensuring that you have a strong safety net in place. When the winds of unexpected expenses, loss of income, illness, or disability cause you to stumble, your financial safety net will catch you before the fall can do serious damage, and you’ll be back on your feet and moving again with minimal disruption. Of course the consequences of many major life events can’t be eliminated even with good planning, but a safety net can help dampen the severity of even these larger problems.
So what is your safety net, and how do you get it in place? Your safety net is woven from a unique combination of individual strands that work together to protect you from those risks which are most likely to confront you and your family. You get it in place by identifying the risks you are likely to face and making provisions to mitigate the consequences if those risks should ever become reality for you or your family.
It’s important to note that it’s your choice which risks you want to protect against, and how much of a fall you can take before the safety net catches you. There is no way to eliminate risk entirely and some risks are so unlikely that they probably won’t require any action.
Height and Wind
We’ll call the known, expected risks, the risks inherent in your current financial system, the “height” risks. Those might be debts incurred, regular recurring expenses, extra obligations like caring for a disabled family member, and things like personal liability of business owners for some business assets. The higher your regular risks, the higher your tightrope sits above the ground, and the further you could possibly fall if a gust of wind surprised you.
Unexpected events, like loss of a job, large unbudgeted expenses, divorce, illness, disability, or other adversity we’ll call your “wind” risks. These are the risks that could knock you from your precarious perch, however high it is.
Seriously consider the height of your tightrope and the types of events that could knock you off your wire. Without honestly brainstorming your height and wind risks, you won’t have a clear enough picture to decide which risks to mitigate, and to what level. Without a clear understanding of your risks, you might end up with a strong safety net in the wrong place and nothing where it’s most needed.
Over the next several weeks, each Wednesday here at SixFiguresUnder.com we’ll examine one type of risk and the ways you might be able to build a financial safety net to mitigate the damage should that risk become reality.
Between personal experience and working as an attorney helping clients understand and manage risk, I have a list of several types of risks and several mitigation techniques. Even so, I’d love to have your input. You, readers, have been on the high wire and have felt the winds blow, and your collective experience will be more helpful to us all than my individual experience. Rather than set the boundaries by laying out my current list of risks, I would ask you to help build and expand the list by answering just three quick questions, or as many of them as apply to you.
- If you’ve ever been thrown from your precarious financial position by the winds of adversity, what sort of a challenge was it?
- As you walk your own financial tightrope now, what are the height and wind risks you most fear?
- For those risks which have turned real, or those which you fear, what have you done to get your own financial safety net in place and mitigate the damage caused by a stumble or fall?
I look forward to your comments. Until next week, keep your eyes open and don’t look down.
Other posts in the Financial Safety Net Series
- Why a Durable Power of Attorney is Part of Your Financial Safety Net
- Creating a Cash Buffer
- Insurance We Do and Don’t Carry– Our Cost, Coverage and Reasons