Reassessing in the wake of terrorism - Personal Finances - Brief Article

USA Today (Society for the Advancement of Education), Dec, 2001

It is a sad axiom that tragedy motivates actions previously neglected. In the wake of the devastating terrorist attacks on Sept. 11, many Americans will want to reevaluate their personal finances, focusing particularly on those components they have neglected in the past. The Financial Planning Association, Denver, Colo., recommends taking the following steps:

Review life goals. The faltering stock market and weak economy may command immediate financial attention, but ultimately it is, or should be, life goals that drive overall personal money management decisions. Events as horrific as the terrorist attacks frequently cause people to reflect on the meaning of their work, life, and money. Should they spend more time with their family and less at work, change jobs or careers, move, retire earlier or later, or pursue more seriously the dreams they long have put on hold? How do they really want to spend their money? Many of these goals have financial consequences and require careful planning in order to be reached.

Review objectives. Accomplishing goals requires achieving established objectives along the way, such as saving a certain amount of money by a specific date. People may want to review their objectives with a new sense of urgency. Are they saving enough? Are they saving and investing in the right way? Are they budgeting their finances in order to free up money to put toward those goals?

Reassess your portfolio. Ideally, a portfolio should be reassessed, and perhaps readjusted, in response to changing life goals and needs, not in reaction to events that may dramatically, but temporarily, affect the market or the economy. Most financial planners believe that the stock market will bounce back in time, and they are strongly advising their clients not to sell out of panic in a down market.

However, should you decide to alter life goals, it may be appropriate to alter your investing plan in order to achieve them. Furthermore, the sudden drop in the stock market following the attacks, compounding the steep decline of the market since the spring of 2000, may have highlighted weaknesses in your mix of investments. Is your portfolio too heavily weighted in one investment area, or is it well-balanced so it can weather the inevitable downs of the market? Most important, are you finding yourself uncomfortable with the investment risks you are taking now that you have experienced them?

Prepare for financial emergencies. As the attacks devastatingly illustrated, disasters usually strike without warning. These include not only manmade disasters, but natural ones such as floods and earthquakes. Many people have a thin or nonexistent financial cushion, living from paycheck to paycheck. The sudden loss of a job--as many in the nation are going through--is devastating if you don't have a cash emergency fund (at least enough to cover three months of bare-bones living) and other financial resources to fall back on. Being properly insured--health, property, casualty, etc.--is also key. Use this opportunity to assess how you would fare if tomorrow you suddenly lost your job or your business were destroyed.

Be prepared for death. This is a grim subject to contemplate, which is why people often avoid doing basic estate planning. Nevertheless, the horror of Sept. 11 should graphically illustrate the critical need to prepare for the unthinkable. A recent poll found that roughly six in 10 adult Americans have no will. Even fewer have powers of attorney or living wills. Many families with dependents have inadequate life insurance. Estate plans either have not been made or are in disorder for survivors.

All these financial issues are difficult to tackle in normal times, let alone in the wake of our recent national tragedy. However, just as the U.S. has been forced to reassess and change how it protects itself against terrorism, so, too, must families reassess their financial health and perhaps alter how they manage their financial lives.