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How to avoid financial disasters

September 13, 2011

Not sure if he’s responsible for the phrase, but I’ll never forget attending a meeting with Jim Seneff, CEO of CNL Financial Group, when asked to sum up the CNL investment philosophy, said “protect the downside, and the upside will take care of itself.” Brilliant.  That has stayed with me, and has been a phrase we’ve tried to build our personal financial decisions on.  Here’s how…

1.  Avoid all non-mortgage debt

The moment you take on debt, you presume upon the future.  You assume your income will be there.  You assume you won’t have large, unexpected expenses.  You assume you’ll always be in position to pay.  This is not protecting the downside.  This is opening yourself up to potential financial disaster.  (Hint:  You’ll never have to file for bankruptcy if you never have debt!)  Even what might seem to be manageable debt, can quickly become unmanageable should you lose a job or face a medical emergency.

2.  Be conservative with your mortgage/rent

The largest expense you have is your housing.  Because it will be such a large percentage of your budget, and will be fixed, it’s always wise to be conservative.  If your situation improves and you want to upgrade, no problem.  If you do face some hardships, you’ve kept the largest part of your budget manageable, and can more easily weather the storm.

3.  Build an Emergency/911 Fund

You should save 3 – 6 months of income to help fund the dreaded financial emergencies (medical, lost job, blown a/c, etc.)  You will sacrifice a little to get there, but then the downside is protected, and, you guessed it, the upside will take care of itself.

Protecting the downside doesn’t mean you have to live this safe, risk-free life.  I believe we’re all called to live on the edge of faith, to take chances when we’re uncertain of the outcome, to pursue dreams that are big and dangerous.  But this is a case of both/and.  You can protect your downside by being wise with your financial decisions, while at the same time taking a leap of faith as you pursue your dreams.  Take your risks making a difference in someone’s life, not by buying the largest house you think you can afford.

One Comment leave one →
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