When it’s too late to prepare for the unknown and catastrophic

Life is full of challenges that will be thrown at you. These challenges throw us out of sync with our daily routine and some will struggle since they are creatures of habit. We feel great when we establish routines because life appears to be on autopilot. There are the few who actively force themselves to grow by introducing change but the large majority stay in the same routine throughout their entire life. Those who embrace change will create mental resiliency to handle the unknowns and hard times while looking for a way to be stronger on the other side.

Events that create calamity are hurricanes, tsunamis, earthquakes, tornadoes, fires, and flash storms. If you purchase a home or business with a loan then you are required to purchase insurance. If you purchase or lease a new vehicle then insurance is required. When you start a new job there are options to enroll into health insurance, disability, life, and other insurances but they are not required. Most will enroll into insurances that are required by asking, “What amounts do I NEED?” The standard is often established by the lender to help protect themselves in the event of default or an unknown event to recover the outstanding loan. This can make your life easy but there are many other considerations besides the loan being repaid.

Natee Meepian/stock.adobe.com

When we think about preparing, the main component we need to consider is RISK. In the context of financial planning, we need to consider the impact events would have on your livelihood which includes income and business value, if you’re an owner. Most will approach risk with the mindset about paying the least. They will sign up with companies that offer suboptimal coverage or reduce coverage to limits that hardly protect them to save a few dollars.

Let’s paint a picture to help understand what risk exist in your life.

Human life value

This might be your first year working, or maybe you’re someone who is getting within ten to fifteen years of retirement. When starting your career there is so much to lose. Hopefully during your career money is saved and wealth is built to help counterbalance the unknowns. Your Human Life Value is all projected future earnings brought down into present day.

A newly graduated, 30 year-old veterinarian earning a $100,000 annual salary is projected to collect at least $3.5 million by the age of 65 with zero pay increases. This money is used to provide your lifestyle, save for the future, pay taxes, and outstanding debts. When your income gradually increases by four percent each year the total climbs to an eye watering $7.3 million. These numbers are future based, and a multiple is used for different age bands to bring the income to today’s value.

As a business owner, there might be a wage paid from the business, but the profits need to be considered into the overall story because that money is your money. Whether the money is kept inside the business checking, contributed back into the business, or randomly withdrawn to your personal checking these funds can help with wealth building in addition to your future business value.

Business value

You could be a sole business owner and one veterinarian, or a multi-owner practice with dozens of veterinarians. The value of the business is calculated from profits. This is all the money after expenses including deductions like depreciation and your wage. The goal is to increase the profits, not revenues, to increase the business value. Revenues will increase with the profits but increased revenues does not always equal higher profits. As more expenses are introduced into a veterinary practice this can dramatically decrease the profits. The value today for the business will be less and increase as profits increase. Profits can increase by expanding location, increasing service fees, offering new services, and reducing costs.

Ownership and legal documents

You might be the person who has repeated this statement dozens of times, “I’ve been meaning to get that done” and have not taken the next step. Your estate plan is vital for a smooth transition to your immediate family and the next generations. These documents include a Will, Living Will, Power of Attorney, and Healthcare Surrogate (terminology is different if you live on the East or West cost of the US). Another overlooked document is a Trust. These documents come in several forms and the most common is a Revocable Trust. Other legal documents such as Buy-Sell Agreements with the proper funding are important for a clarity and direction on how ownership changes hands upon the early passing, disability, disagreement, divorce, early retirement, and the list goes on. When a business is owned by more than one person this can create extra complexity that most family members are unprepared to handle. Ownership of belongings such as vehicles, homes, and other assets can create extra liability for the other person. This is common for those who co-sign for a car or extend auto insurance to their child even when they are an adult.

What to consider before it’s too late

Take a “global” inventory

There are many pieces to the puzzle of life. Most get overwhelmed and decide to react to what’s presented without understanding how everything interconnects. The best way to get a good handle on what to do next is by organizing all personal and business finances. The categories to consider are Protection, Income, Expenses, Savings for Wealth Building, Debt Costs, Assets, and Liabilities. Without a clear picture on what exists, this can create obstacles and oversight. As everything is compiled then the immediate next step can be handled like an unforeseen severe car accident or a closer dive into disability insurance. Afterwards the bigger picture can be brought into the equation to understand how to better prepare for the unknowns.

Review all the "checked boxes”

Put on your investigator hat because now is the time to really understand what decisions you made and the overall impact those decisions will and could have on your life. The disability insurance that you signed up for through work, the life insurance policy that you randomly purchased from an insurance agent, the legal documents that were set up through an online platform, how much money you’re actually saving for wealth building purposes, and how your handling debt repayment with everything else in your life (just to name a few). We want to take a closer look to know how much the insurance coverage will pay, what events qualify, how do my legal documents read and are they still sufficient for my current situation, and how much is really being saved for future financial independence and less reliance on the business sale.

Create a plan and act now

A plan should have a plan when nothing goes accordingly to plan. Maybe there is a plan in place, and all these actions were taken previously. The question to ask yourself is how adaptable and flexible my plan is when calamity does strike. Veterinarians struggle with planning for their finances due to limiting beliefs or over confidence and trust in people who they believe are doing what’s best for them. There is a fine balance between self-educating for baseline knowledge and trusting the professional to educate and guide you. Make sure that you’re working with someone that focuses on the habits and behaviors that will help contribute to your highest level of financial success. Otherwise now might be the time to consider making a change to someone that can see the picture at a higher level and create simple steps to implement what’s best for you.

You have a choice to take act now or stay in the status quo like most of the society. You might be ok when an event strikes. The best gift to give yourself is to remove the “might” and add certainty to your life so you can live a less stressed and regret free life.

Seeko is the cofounder of Florida Veterinary Advisors, a national personal and business financial planning firm. He is the cohost of The Smarter Vet Financial Podcast and coauthor of Unleashed: The Financial Clarity Every Veterinarian Needs.

DISCLAIMER: Material discussed is meant for general informational purposes only and is not to be construed as a recommendation or advice. Please note that individual situations can vary therefore, the information should be relied upon only when coordinated with individual professional advice. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Tom is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Florida Veterinary Advisors is not an affiliate or subsidiary of PAS or Guardian. Florida Veterinary Advisors is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. The individuals associated with Florida Veterinary Advisors do not maintain specialized licenses or qualifications for the financial services provided to veterinary professionals CA Insurance License # 0K80141, AR Insurance License #15823672. 7833541.1 Exp 4/27