A few weeks ago, a piece in USA Today caught my eye. It was centered around a statistic from SunAmerica Financial Group and Age Wave, who found that 70 percent of parents age 55 and older predict they’ll need to financially help their adult children at some point.
The National Endowment for Financial Education released similar statistics recently. Their research looked to the past and found that 59 percent of parents of adult children (ages 18-39) say they’ve lent them a financial hand.
But your child needing some help is just one example of an unexpected drain on your wallet. What if your spouse loses his or her job? A family member suffers a medical emergency (and the bills that go along with it)?
As small business owners, our personal finances are so intertwined with our business finances—it’s simply the nature of the lifestyle. When something goes wrong at home, the last thing you want to do is let your system of financial support fall apart. So how do you plan for a scenario like this, or soften the blow after the fact? Here, a few pieces of advice:
- Think ahead. I often bring up emergency funds through my magazine columns or when I’m on the Today show. That’s because they are, in large part, the foundation for a healthy financial life. If you have emergency cash that can cover six months of your expenses, you can avoid pulling out the credit cards when times get tough. You need the same peace of mind for your business, says Louis Barajas, a certified financial planner and author of Small Business, Big Life. In that scenario, he calls it a confidence fund, but the premise is the same: Cash on hand to help you out of a jam. One fund for your home finances, one for your business. Sound like a big hill to climb? It is, but my next point will make it a little easier.
- Shift the risk. To insurance companies—that’s what they’re there for. Having adequate but affordable insurance will help you buffer the cost of certain emergencies—product damage or loss, health scares—and keep the amount you need to save for that confidence fund manageable. Why? Because if you have the proper insurance policies in place, you can save enough to cover your out of pocket costs and deductibles, then let your insurers pick up the rest. You can also raise your deductibles slightly—say, from $250 to $1,000—because you’ll have the cash on hand to meet them should you need to, says Barajas. “Instead of an auto insurance deductible of $500, bump it to $1,000. Instead of disability insurance kicking in after one month, you can get one that kicks in after two. You’ll minimize the cash flow going out because your premiums will be less expensive, but you’ll save enough to cover the higher deductibles.” Note: It may be helpful to work with an agent who can help you get the adequate coverage for your business and your personal life.
- Get creative. Your business may work for you here, says Tom Orecchio, a certified financial planner in New Jersey. “To the extent that owning a small business can assist in addressing the issue, the small business owner should use that to his or her advantage. For example, if services that are offered to the business can be leveraged to assist the problem—access to professionals, discounts on services, discounts on products.” I’d take it a step further: If your adult child needs financial help, or your spouse is out of the job, can they work for you? It could solve a myriad of problems: They’ll get an income, you may save money—or at least get a return on the money you’d be providing anyway—and you could help them get other benefits, like health insurance.
- Keep tabs on the situation. Many small businesses work with an accountant to do the books every quarter, six months or even once a year. But it may be helpful to you, both during rocky waters and while planning for them, to have someone prepare a cash flow statement every month, says Barajas. You’ll have a more complete picture of your outlook, which will make you feel more in control.
Jean Chatzky is financial editor of NBC's "Today" show, a contributing editor at More magazine and author of "Money 911: Your Most Pressing Money Questions Answered, Your Money Emergencies Solved." She recently launched the Jean Chatzky Score Builder in partnership with smartcredit.com. Check out her blog at jeanchatzky.com and follow her on Twitter and Facebook.
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