Preparing for 21st century change

The state of the economy is wreaking havoc on the family’s budget. This makes saving more and more difficult. Families must revisit plans for vacation, eating out and recreation in order to ensure enough funds are available to support these endeavors. As budgets begin to shrink, families must become more vigilant with retirement plans, preparing for health crisis, making provision for children problems, and the unexpected changes the fluctuating economy cause.

The family needs to establish a family risk- mitigation plan along with their budget in order to adequately meet the challenges of the 21st century. Establishing a good risk mitigation plan requires a financial audit, a review of income and expenditures and the development of an investment strategy. Families need to take charge of their own financial future. Ordinarily this is a difficult task, but setting up a simple risk-mitigation plan can be easy.

Change is inevitable, things happen that are beyond the control of the average individual. Families benefit from planning for unexpected occurrences through the budgeting process for years. The budget usually includes an emergency fund to help defray unexpected expenditures. This is very important because if helps individuals set-up rainy day funds that allow for the expenditures comes up suddenly. Risk mitigation takes the emergency fund idea a step further.

Risk mitigation is the process of planning for the unexpected in such a manner as to lessen its impact upon a family. This is not new. Businesses have been developing these plans for years but individuals did not see a need to develop any long-term view of risk. Family leaders need to begin thinking differently to meet the changing landscape of the 21st century global economy. Things change so quickly that the emergency fund can vanish overnight leaving a family destitute. Therefore, every family needs to adopt a family risk-mitigation strategy to prepare for the unexpected.

Globalization, technological advancement, deregulation and global warming are creating scenarios that require the family to rethink how they position themselves to meet future challenges. One way is to establish a family risk-mitigation strategy. This strategy must begin with a financial audit, a review of income and expenditures and developing an investment strategy. The process includes doing a gap analysis by looking at the short-term versus the long-term needs.

The financial audit is the first step of developing a family risk-mitigation plan. The financial audit a review of details of household finances. In the audit, all insurances, contracts, loans, commitments and debts need reviewing. This review is about identifying all sources in the family that affects a family’s finances in a positive or negative manner. At this point, the family is seeking awareness of all income and debt generating sources.

The next step in developing the family risk-mitigation plan involves determining all income and expenditure sources. This step is important because it allows a household to determine if expenditures exceed income. Review of income and expenditures must include assets they can easily liquidate. In essence, the family is determining its net worth. This process along with the financial audit, help the family decide where they can increase income and reduce debt. This allows the family to immediately begin positioning itself to develop a firm foundation for eliminating debt and generating funds for the mitigation of unexpected risk.

The third step in developing the family risk-mitigation plan is the development of an investment strategy. Until a family gets to a point, they employ their income in building their family risk-mitigation plan as the potential for catastrophe remains high. Events of nature, war, total collapse of the economy, death, or extreme medical situations are virtually unstoppable. Therefore, the primary aim of a family risk-mitigation strategy is not to eliminate risk, but to lessen the blow of risk. These events are going to happen. However, with an effective plan, a total family collapse does not have to occur.

Planning for the unexpected is a process of looking at the family’s present situation and making decisions to get the family to a position that the family’s risk mitigation plan is funds itself. Doing this gap analysis will identify where a a budget can be restricted, spending habits and investment strategy so they not only take care of retirement, health crisis, and children problems, but also secure stability to weather the unexpected storms of life. The climate of the 21st century is dictating that families take a fresh look at how they are approaching activities of daily living.