Do you have a plan to achieve your life goals? Actually, you should have two plans: Plan A is your strategy for success, assuming that everything works out. Plan B is your strategy to plan in case of the worst, to be prepared for obstacles along the way. These two plans are quite distinct from each other.
Plan A is mostly about determining your life goals, saving and investing for them, and then having enough income to achieve those goals and live your dreams.
Plan B is discovering and dealing with obstacles to Plan A - what are they and what can you do about them? Those obstacles are risks to your success, and you have four approaches to deal with them. For each risk you can eliminate it entirely, reduce it, accept it, or give it to someone else.
The process for developing a Plan B is nothing more nor less than identifying the risks and then explicitly deciding which of the four approaches to use for each. Here are some of your financial risks:
• income not being there when you need it
• expenses growing beyond your ability to pay for them
• assets being used up to pay for accidents or lawsuits
• loss of control over your financial affairs because of an accident, your illness, or your death.
You can use legal agreements and insurance contracts (which are also a type of legal agreement) to eliminate, reduce, or give away your risks and develop a Plan B.
Consider, for example, the fourth financial risk - losing control of your finances because of an accident. Rather than going to court and having the court decide what is appropriate every time you need money, you can delegate the responsibility of decision-making and execution to someone else, typically a family member. The delegation of responsibility is done through a legal agreement called a "Power of Attorney" (POA).
The POA spells out:
• who has the power and authority to act in your behalf
• who the backup person (or institution) is if the primary person cannot or does not want to act
• what actions they can take and for which assets
• the time frame for acting
• how the person or institution has to account for what they have done.
You execute (sign) the POA and have your signature notarized. Then financial institutions will accept that document so that your backup can take over as needed.
This legal agreement reduces your risk - the obstacle of not being able to manage your affairs - and lets you proceed on your way to achieving your goals in your Plan A.