Yahoo Finance When Financially Successful Families Fall Off the Wagon
There are many Americans who are barely scraping by financially. According to a 2017 Bankrate survey, nearly 60 percent of people can't come up with even $500 to cover an emergency expense.
However, plenty of other households have good jobs and full bank accounts. These families may not be struggling to pay the bills, but that doesn't mean financial disaster can't strike them as well. The danger for financially successful families is thinking their income or assets insulate them from money troubles.
From a job loss to an extended illness, one unforeseen event is all it takes to reveal how unstable some supposedly successful families really are. Fortunately, there are some simple strategies that can be used to secure family finances and get them back on track after an emergency.
[Read: 4 Ways to Protect Yourself From Financial Disasters.]
Defining success the right way. Families might have varying definitions of success and not all of them create long-term financial stability. "Unfortunately, I think a lot of people define financial success by their job title or position," says W.J. Rossi, partner at financial firm Koss Olinger and past president of the Million Dollar Round Table's Top of the Table group. "They are riding the corporate ladder, and they assume that because cash flow has increased for the past few years, it will continue to increase."
However, true financial success may have less to do with a family's current income or cash flow and more to do with how well they use their available resources. "As fast as you make [money], in a blink of an eye it can all be gone," says Michael Foguth, founder of Foguth Financial Group in Brighton, Michigan. To be financially secure, families should work to implement systems that will ensure they can weather the loss of income or another setback.
Common pitfalls for financially successful families. When families have plenty of money coming in, they may get lax about their spending. Stephen Daney, founder of The Life Money Center in Albuquerque, New Mexico, says those who are well-off may not notice money leaking out of their budget for trivial expenses. They may also overlook the tax implications of certain savings strategies.
"You would not believe how many people don't want to invest," Daney says. Keeping money out of the market means missing the tax benefits of a 401(k) or an IRA. It also limits potential gains. "They, in effect, put their money under a pillow," Daney says of those who keep their money in a regular savings account.
Other families have the opposite problem. They place too much trust in the stock market and come to expect double-digit gains on their money each year. "Don't get overconfident with what's going on in the marketplace today," Foguth says. He reminds people that investment gains aren't really theirs until they are withdrawn. Until then, they can be lost at any time.
[Read: Frugal Confessions: When Saving Money Backfires.]
Job losses can be devastating. Almost half (47 percent) of adults say the loss of their primary income means money to support their lifestyle will run out in less than three months, according to an MDRT survey of more than 2,000 adults earlier this year. That's far less than the average length of time people typically spend trying to find a job. The Bureau of Labor Statistics reports that, as of September 2017, the average length of unemployment is 26.8 weeks.
Those in higher-level positions may take longer to find a comparable position. "If you leave a job as a mid-level executive, you're not going to want to start all over again [at entry level]," Foguth says.
While losing a job can set back a family's finances temporarily, a disability can do permanent damage. Rossi says that's one risk many people don't consider. "If it were me, I'd look at how to protect my income," he says. To do that, he recommends disability insurance which will make cash payments in the event someone is unable to work because of an illness or injury.
[Read: How Super Savers Max Out Their Retirement Accounts.]
Create a financial plan for lasting success. No one can predict what the future holds, but being prepared for major contingencies is the best way to ensure unexpected events don't derail a family's financial success. "No one wants to live their life like an actuarial problem," Daney says. "[But] nothing works better than having a good comprehensive financial plan."
A good plan helps people determine the right level of savings, retirement investments and insurance coverage. With that in place -- and a commitment to following through on its guidance -- families can minimize their chances of falling off the wagon when it comes to financial success. Or at the very least, they will be in a good position to climb right back on it.
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