"Expect the best. Prepare for the worst. Capitalize on what comes." -- Zig Ziglar
The advice above from motivational speaker Zig Ziglar isn't groundbreaking, but many might not appreciate how well it can serve you when applied to your finances. Here's a look at how you might apply it effectively in your life.
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Hope for the best and prepare for the worst -- in your job
It can be easy to get complacent in your job, assuming it will always be there. Unexpected things happen, though. To protect yourself against a surprising job loss, you might aim to be and stay very valuable by working hard and effectively, and being respected and liked by your colleagues.
That's not always enough, though, so consider continually updating your skills and perhaps adding new certifications or professional designations now and then. That can make you qualified for more jobs -- and potentially higher-paying ones, too.
Hope for the best and prepare for the worst -- in your daily life
Another smart move you can make to protect yourself from a job loss is to have an emergency fund -- one stocked with enough to support you for at least a few months until you land your next job. An emergency fund can also save you if you suddenly face a costly health issue or your car suddenly needs a new transmission. Big, ugly expenses can and do show up sometimes.
Hope for the best and prepare for the worst -- with insurance
Few people really appreciate insurance. You might think you're paying for nothing when your house doesn't burn down, your car isn't stolen, you don't need a costly medical intervention, and you don't die unexpectedly. But you paid for protection against such events. Had they transpired, you would have been covered. That's worth a lot.
Here are some insurance tips: Have your homeowner insurance cover the cost of rebuilding your home and replacing your property, not just their market value, which may be lower. If you rent, get renters insurance. Consider carrying more than the minimum required car insurance in case you get sued. Look into whether you need flood insurance, umbrella insurance, or any other kind of insurance.
Shop around for the best-priced policies from well-regarded companies. And consider opting for high deductibles in order to get lower-priced policies -- as long as you can pay the deductible if needed.
Hope for the best and prepare for the worst -- in your investing
Read up on investing in the stock market, so that you know what to expect. For example, it's hard to beat the stock market for building long-term wealth, but you should only invest money you won't need for at least five, if not 10, years in stocks. That's because you don't want to need to cash out just after the market has crashed.
You'll need to expect market downturns and crashes, because they will happen every few years. The market has usually recovered from such events within a few months or a few years, but it's possible that the market could stay down or flat for a bunch of years. So keep that in mind and don't plan your financial future counting on perpetual smooth sailing. Especially as you approach retirement, you might want to keep a chunk of your nest egg in certificates of deposit (CDs), money market accounts, or other relatively safe places.
Having a little extra cash on hand most of the time can also help you "capitalize on what comes," per Zig Ziglar. If the market drops, that usually presents some great stock-buying opportunities, with shares of terrific companies on sale.
Hope for the best and prepare for the worst -- regarding inflation
Inflation is another financial danger to brace for. Inflation has averaged about 3.2% annually over the past century or so. That's not a steep rate, but over a retirement that lasts 25 or 30 years, it can cut the purchasing power of your money by more than half! And it's possible that inflation might average more (or less) than 3.2% over the decades ahead.
So what should you do? You might aim to keep increasing your income one way or another to keep up with or exceed inflation. Asking for a raise every few years is often worth it: According to a Payscale.com report, while only 37% of survey respondents had asked for a raise, among those who did, fully 70% got one. You might also save more aggressively, aiming for a fatter nest egg at retirement.
Hope for the best and prepare for the worst -- regarding Social Security
Then there's Social Security. It's a terrific safety net for retirees, providing critical income. The program is facing some challenges, though, and there's a chance that future retirees might end up with only 77% of the benefits they're due. And the average monthly Social Security retirement benefit was only $1,840 as of August, amounting to $22,000 annually.
As with all the other scenarios above, you'd do well to hope that Congress bolsters Social Security -- and it well might, as it's so vital to so many -- while preparing for smaller benefit checks by making sure you set up other income streams for retirement. There are ways you can increase your Social Security benefits, too.
The more you brace for the worst, the better your financial life is likely to be, even if the worst never happens.
