Preparing your own ‘stress test’

Posted June 21, 2009, at 8:17 p.m.

Suppose you lost your job, your health or your spouse. Could you cope? Would you end up broke?

Los Angeles Times columnist Kathy Kristof recently posed those questions in AARP The Magazine, writing that with the economy on life support, it’s time to stress-test our finances.

Are you prepared for a life crisis? Statistically speaking, if you haven’t faced at least one life crisis already, you will. Every year, millions face fateful turns of events, such as illnesses, divorces, disabilities, job losses and deaths. For many, the results are worsened by financial pressures.

A new survey sponsored by AARP Financial examined adults ages 40 through 79. The results indicate most of us are overconfident before trouble strikes and left shaken afterward.

Kristof has a plan of attack. She says there are things you must do before a life crisis comes your way:

— Save already! If you’re dipping into your retirement accounts to get by or eyeing your home’s equity, stop. Scale back. Save as if your life depended on it. Job loss comes without warning. You need enough money in the bank to make it until your next job.

— Work your network. The people who best manage when the worst happens are not too proud to seek help within their personal networks. Foster your relationships now.

— Cover your assets. Stop thinking that bad things only happen to others. Your most important asset is your earning power. The only way to protect that is with insurance. Your chances of being disabled are more than your chances of dying, in most cases. Ask your employer to see if disability insurance is available to you. If not, shop for an individual policy.

— Be an equal partner. Defending against divorce is a touchy subject, particularly if you are in a marriage with wealth to protect. For most, the safeguard against an ugly divorce is developing the good habits of budgeting and investing together, Kristof says. These activities teach couples not to fight over money. If divorce hap-pens, the history of sharing money decisions will help.

— Prepare to act. If you suffer the death of your spouse, you will be shell shocked. Learn now how to run your spouse’s business. Have a backup plan as part of your estate planning. Know the first thing you should do in an emergency so you will be able to do it by rote. Having a checklist to guide you will be a great comfort. You need to have the ability to act, not freeze, when you face a crisis.

It’s easy to take life for granted when everything is going well. The best thing you can do is appreciate your life while also preparing for the worst. It may never happen, but if it does, you’ll be especially grateful that you did.

Mary Hunt is the founder of www.DebtProofLiving.com and author of 18 books, including her latest, “Can I Pay My Credit Card Bill With a Credit Card?” You can e-mail her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, Calif. 90723.

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