Prepare for Uncertainty with Family Fire Drills

Life is uncertain. There are many things that are beyond our control.

Much ink has been spilled on various strategies that can help with managing uncertainty, from focusing on what you control to managing expectations in a way that braces against the disappointment and sadness that comes with some uncertain events. Much like a plan for a fire or hurricane, it is very good to have a plan for life’s uncertainties. That starts with having a financial plan where assumptions can be modified to account for negative scenarios. For example, model a plan with a return or inflation assumption that is higher or lower than historical observations or a life that is shorter than expected.

We have all participated in fire drills. Whether at school as a student or perhaps more recently at work.

The idea is a simple one. Have a plan for what to do, where to go and who does what to make escaping from a fire most likely. The fire drill helps everyone practice and understand what they agreed to when there was no fire threat. This planning is vitally important to make sure that indecision and panic in the face of a dangerous threat do not take hold. With this notion in mind, I invite you to consider the same concept as it pertains to our financial lives.

A financial fire drill considers what happens in the face of various uncertain and unpleasant situations.

Death, deteriorating health, income loss, wealth loss, high taxes, high inflation, property loss, etc. are all examples of uncertainty. Taking time with loved ones to consider the impact and what options exist in advance of an unpleasant outcome is wise planning. Reviewing our plans with one another and documenting what the best steps are and what decisions will likely need to be made help strengthen our preparedness for life’s uncertainties.

A good financial plan is a great place to start building the steps for your family fire drills.

This is because a financial plan considers risk management/insurance as well as estate planning. Obviously, life, health, disability and long-term care insurance are methods of handling some of the financial uncertainties of our death or health decline. Take that planning another step by considering other contingencies, including what to do with mobility, domestic and living arrangements, pets, property maintenance, vehicles, digital assets, etc. The estate planning documents address who is your health care power of attorney and durable financial power of attorney (or trustee); perhaps these people can also help to address this broader set of issues. By having this discussion now before an emergency arises, we can identify with our loved ones what is likely to happen and when the plan is not sufficient. Having a transparent discussion as a fire drill supports everyone involved. After all, it is good to know if someone is going to be unable to assist in the difficult moment we are planning for. When going through the fire drill, it is good to discuss and imagine the circumstances so that weak planning assumptions can be identified and contingencies chosen.

In most people’s fire drill plans, they have family and friends who play a role.

When that is the case, you must identify how reacting to one person’s uncertainties creates uncertainties for the other. This often occurs with spouses and partners. It is important to identify when the necessary tasks to assist our family are beyond our abilities and to prepare backup plans. In some cases, people need to identify professional fiduciary services and caregivers to help with health and financial matters if no one else is able or willing to assist.

Planning for the worst and hoping for the best is a great starting point.

Family fire drills are a good way to start testing the decisions we have made and determine if they are sufficient. Preparing for an uncertain world can help us to worry less in our lives because we know the plan and have considered and practiced what it is we will do to overcome uncertainty in the moment. If we can support you and your family in the creation of a family fire drill please contact your financial advisor.

Rick Manske, CFP®, CFA™
Chief Executive Officer

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