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When families think of their personal financial planning, it might be helpful to consider how business companies work and how corporations plan and use their financial resources. With a business the main objective is to earn a profit and efficiently use the businesses capital, to gain a return on the original capital investment. The goal is to achieve a level of success consistent with the level of risk the business assumes.
Businesses and corporations, make financial decisions all the time they use their profit funds and the anticipated rate of return to lean many of the choices the make. Take any small business, for example Mary has a Flower Shop. Mary knows that leasing a larger building in a busier shopping mall will increase her business exposure and lead to more customers. Mary knows that she will need to take a small business loan from the bank in order to move her flower shop to the new location and purchase the tools, equipment, and stock to set up her new shop but, she expects the return on her investment will exceed the cost of the small business loan.
Looking at our own family financial situation and considering our investments and choices in the same way a business might set the stage for a stable financial household. A Family household’s expenditures are investments, many are consumption based clothing, food and entertainment. But, many household expenditures are in fact capital investments. From the purchase of a home, to education and professional training. These things promote an increase in value of the investments families make.
Passive investments such as 401K’s, or stocks and bonds, investment property, or a small home business all lead to a more successful family financial situation. Household expenses for the purchase of the house, children’s college expenses, cars, health care, and basic survival all depend on the current household incomes in order to be sustained or grown. Families count on the continued income and resources to last long enough to pay off any debts. Many families have a goal of leaving a little something behind for their children and grandchildren.
Most families recognize the importance of insuring their assets, and understand the need to have insurance for personal property, homes, and cars. Many people purchase life insurance which is great to replace lost earnings if one of the parents were to die. These are all important and wise investments of the family capital. The problem is that accidents and illnesses happen all the time, and these situations are often the last straw a family can suffer before they bottom falls out of their personal finances. The lose of a stable and anticipated income n too many situations leads to complete failure of the family economics.
Protecting the loss of income in the event one of the parents were to die is a very important part of family business. But a long-term disability is far more likely to be a problem at any given age than premature death might be. When a households faces the disability of one of the wage earners they are forced to depend on Social Security Disability Income payments, and use savings to maintain the standard of living.
As a business families can invest in disability insurance, long term care insurance and a variety of other products they may help in the event there is a disruption to the earning and investment cycle. Each family needs to have a clear picture of their whole financial business portfolio and consider the areas with the greatest risk.
If one accident puts an income earner out of work for a year, what will the family business need in order to remain stable? Talking to your Insurance agent about the whole financial picture of your family may open up the opportunity for an insurance products you may not have known was available.
It’s great to use insurance to cover the personal property, liability, health and life of important assets and investments, but there may be holes in the kind of insurance you currently have. Finding a good insurance or financial advisor may help the family business remain strong and stable under situations we are at the greatest risks to suffer.
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