We all know that life is unpredictable. In fact, the only thing that’s certain is that things will be uncertain. Despite this, or perhaps because of it, I think the majority of people are risk-averse. We’re concerned about future and its potential for unfortunate circumstances. If we weren’t, there would be no such thing as insurance–and there’s insurance for just about everything.
While it’s important to think optimistically, knowing you have a good safety net can help you rest easy at night. Maslow’s hierarchy of needs teaches us that, besides air and food, a feeling of safety has to come before anything else. Imagine having a conversation or trying to improve yourself when you’re afraid the roof is going to cave in.
So, because I like to sleep well at night, I’ve created a decent safety net for myself and my family. That way, I can be free to pursue some more interesting ventures, with the confidence knowing that if all else fails, we’ll be alright.
If you haven’t already, here are some specific ways to create safety nets in your life.
Financial Safety Nets
Depending on where you get your financial advice, experts will say your emergency fund should cover 3-6 months of all your expenses. They say that you should keep your emergency fund in a very liquid type account, such as a savings or money market account. Personally, I don’t really have a true emergency fund as I don’t like to keep too much cash on hand. But everyone is different, and what doesn’t necessarily work for me may be just the thing for someone else.
You probably already have several types of insurance–health, homeowner’s, auto, malpractice. Umbrella insurance is designed to work alongside all of those (and sometimes requires them) while providing additional coverage if one of them fails to pay completely. This is especially useful if your insurance is liability-only.
Perhaps the greatest benefit, though, is that in the event of most any kind of lawsuit, umbrella insurance will make sure that your savings stay intact. The best thing you can do is buy enough to cover your net worth.
Multiple Streams of Income
Having many different incomes can help ensure against job loss or a reduction of one of those incomes. We all know that reimbursements in medicine are headed in a downward trend. What’s your solution if, more like when, that’s the case? Work more hours, work more weekends and nights? No, not me. I’m hedging by creating and nurturing other streams of income.
What if your group gets bought out and you’re left without a job? It's already happened to several of my co-residents and we haven't been out of training that long. With the business of medicine more and more in the hands of non-medical people, expect these things to happen more often.
Traditionally, relying on a single source of income was enough. These days, having several is nearly a necessity.
One way to create a little buffer of safety is to reduce your liabilities. Pay off your loans. Having a smaller expense column in your budget means that it’s easier to weather changes in income. This might mean putting additional payments into your student loans or accelerating your mortgage payments. Whatever the case, the less debt you have, the less you have to worry about.
Only a few years ago, I was in the camp that believed that you should maximize returns at every opportunity. For example, my primary home mortgage interest rate is at 3.5%. When I first signed onto the loan, I told everyone that I would never pay an extra payment to accelerate payoff. I would rather put that money towards investments that could net me 7-10%.
However, as I've grown wiser (in the last five years, ha!), I'm starting to see the merits of paying off your home earlier. There's an emotional component to paying your house off that's real, and yes, it helps people sleep better at night.
Health Safety Nets
This is an obvious one, so I won’t go into too much detail. However, I would like to mention that if you’re healthy, you may want to consider a high deductible plan with an HSA. After all, it's also known as the Stealth IRA.
This is a no-brainer, in my opinion. Especially for physicians in technically-driven specialties. Do you perform a certain procedure? Could you continue to work in that specialty without it? If so, consider specialty-specific insurance. This is insurance that ensures you being able to work your specific specialty. And no, they can’t make you change fields. Sadly, I personally know several physicians who had career-ending injuries relatively early on in their careers. Consider talking to these insurance agents if you don't have this yet.
When it comes to life insurance, the sooner the better. Most younger people don’t think about buying life insurance, but the best time to get it is under 35.
Term life insurance, the kind to get, is cheap and protects your family against the loss of the main breadwinner. The White Coat Investor makes it simple: “Buy the cheapest, long-term, level-premium term life insurance policy from a reasonably-reputable company that you can find.”
This fits into both the financial and health categories. If you’re in need of long-term care, like home care or rehab, this will help pay for it. Without long-term disability, this can become quite expensive, and in some cases, can even lead to financial ruin. This type of insurance is sometimes called “income-replacement insurance,” so you can see how valuable it is if you have to miss a lot of work. This is one I actually don't have yet but have been considering.
Setting up a trust is like a safety net for your family. Instead of a will, a living trust ensures that your assets go where you want more quickly, and with very little court interference. Most people who set one up go with a “revocable” living trust, because it allows more control while the grantor is alive. You can also cancel it anytime.
The other option, called an “irrevocable” trust, offers less control but allows to to keep assets outside of your estate. This could mean a lot less taxes.
Physician on Fire has a great post on this.
Life Safety Nets
Computer & Hard Drive
How many of us have important documents stuck in our computers? How many actually back them up? Hopefully you have a backup of some kind, but there a lot of ways you can be extra safe. I use an online cloud service called CrashPlan for Business, but I’ve also heard good things about Carbonite. You can also buy an external HD for cheap, like a Western Digital for PCs or Seagate for Macs. It only took one time for my daughter to spill soup on my keyboard for me to realize just how important this is.
We all now have thousands of photos because of our phones. Do you have a backup in case you lose your phone? For iPhone users, make sure to have iCloud set up. My other favorite method for both Apple and Android users is Google Photos, which is free unlimited storage if you keep your photos in a lower resolution.
There are some very important physical documents we all have, and that can be very difficult to replace. For those, have a fire-proof safe somewhere in your home, and keep some of the following things inside:
- Birth certificate
- Copy of driver's license
- Car titles
- Original social security cards
- Flash drive of family photos
In many cases, it truly is better to be safe than sorry. In life and especially finances, life can be made easier and even less stressful by making a few preparations today. Sleep better at night, and allow yourself to focus on other things, knowing the important stuff is taken care of.
Have you done your own preparations? If so, what are they? What else am I missing?