Are You on the Path to Financial Ruin? 4 Financial Ticking Bombs and How to Diffuse Them

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Unlike the wealthy, most have little to no safety net to weather events in life that could take the legs out from underneath you, sending you spiraling into financial ruin. In my Rich Habits research, I studied the habits of 128 individuals living in poverty. Some of those poor individuals were driven into poverty unnecessarily due to certain life events that they were completely unprepared for. Life sometimes has a way of throwing us into the abyss. Below are four of the most common life catastrophes and the strategies I uncovered in my research that act like a ladder, helping you climb out of your abyss, in tact financially.

Death of a Parent

Today, most households need both parents to work in order for the family to survive financially. When one parent dies unexpectedly, the emotional suffering for the children and the surviving spouse can be almost unbearable. The heartache families experience in dealing with a loss of a parent and spouse is hard enough, but couple that with the loss of that parent’s income, and that’s when life starts to unravel. No longer able to afford the home you and your children live in, you are forced to uproot your kids from their friends, school and environment, which fuels the emotional firestorm already raging in their lives. If, prior to the loss, the family was eking by, now your children will experience poverty for perhaps the first time in their lives. The emotional scars from the loss of a parent, exacerbated by the financial trauma, will alter the course of the lives of your children.

While the emotional devastation of a loss of a parent or spouse is unavoidable, the financial ruin is not. This is why life insurance exists. Its purpose is to replace the loss of earnings when a loved on dies. The amount of life insurance each wage earning parent should have can be easily determined. Just divide that parent’s income by 5%. Example: Mom earns $50,000 a year. $50,000 divided by 5% = $1,000,000 in life insurance. If Mom were to die unexpectedly, that $1 million, even if it is put into a non-interest-bearing checking account, will help your family get through 20 years without a parent. If you do invest that $1 million conservatively and it generate 1-5% of income per year, then that money will last longer. Life insurance is a ladder that will help you climb out of the abyss caused by the death of a loved one. The more life insurance your loved ones have, the sturdier the ladder, which puts you on sounder footing, making your climb out of the abyss less difficult.

“But I can’t afford life insurance,” you say. The cost of term life insurance has dropped significantly over the past twenty years due to increases in life expectancy. If it’s still too expensive, than you need to cut back on other things in your life. If you’re a wage earning parent whose family is just getting by, you absolutely must have life insurance. Those who don’t, expose their spouse and children to potential financial ruin.


Two out of every five individuals, at some point during their earning years, experience some type of disability. Occasionally, the disability is permanent, meaning you will no longer be able to work. Although the emotional pain to the family is not as great as a death, the financial implications are worse. Not only do you lose the earnings of a disabled spouse and parent, but the costs related to providing for the family are greater. With a permanently disabled spouse and parent, the surviving spouse has one additional person to provide for, plus out of pocket medical costs associated with the disability.

This is why long-term disability insurance exists. It’s purpose is to replace the lost income of someone who becomes disabled. Most standard policies cover a minimum of 60% of lost wages. As the income replacement percentage increases, the cost of the policy increases. Because the incidence of a long-term disability event is statistically more likely than a loss of life event, long-term disability policies are even more important to have, than life insurance, for each wage earning parent. Once again, if you’re a wage earning parent whose family is just getting by, you absolutely must have long-term disability insurance. Those who don’t expose their spouse and children to potential financial ruin.

Job Loss

Many are still reeling from the devastation wrought by the 2008-2009 Great Recession. Although the unemployment rate has dropped, the quality of jobs has fallen. Nearly 20% of those who have been able to find jobs, post-Great Recession, are earning a fraction of what they were earning pre-Great Recession. This reduction in earnings has resulted in an explosion of those who are living at or near poverty. Home foreclosures are still affecting families, who are being torn apart financially.

Thanks to my Rich Habits research, I uncovered a strategy that non-wealthy individuals can exploit to help them mitigate the financial abyss that a job loss can create. Creating a second stream of income is a strategy that acts a lot like insurance in that it provides a source of income during the job loss period. This second stream of income can be a part-time job, a hobby that generates income or a side-business. Many of the self-made millionaires in my study actually became wealthy by virtue of starting a side-business while employed, which, over time, morphed into a full-time business.

Line of Credit

Death, disability or a job loss can occur at any time and result in financial ruin for those just getting by, if you do not have strategies in place to deal with each particular event. If you are in that position right now there is one last strategy available. It’s called an individual line of credit. If you have a home with equity, it is prudent to have a home equity line of credit. If you don’t have a home with equity you’re not at a dead end. Banks have only recently begun to market lines of credit to individuals. Individual lines of credit are intended for the same basic purpose as business lines of credit – to come to the rescue to help you meet expenses when you need to the most. The strategy here would be for each wage earning parent to secure their own individual line of credit. In the event of a death, disability or job loss, the line of credit will help put off financial ruin and buy you time to figure out a longer-term solution.

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Thomas C. Corley About Thomas C. Corley

Tom Corley is a bestselling author, speaker, and media contributor for Business Insider, CNBC and a few other national media outlets.

His Rich Habits research has been read, viewed or heard by over 50 million people in 25 countries around the world.

Besides being an author, Tom is also a CPA, CFP, holds a master’s degree in taxation and is President of Cerefice and Company, a CPA firm in New Jersey.
Phone Number: 732-382-3800 Ext. 103.
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