I think believing in superstitions is bad luck. But bad things can happen to anyone. So one way to deal with unexpected situations is to be like Batman and have a contingency plan for everything. 🙂 I’ve recently updated my stress test page to reflect my current financial situation, which has improved since last year. A stress test removes uncertainty and doubt about our finances so we can sleep better at night. 😉
A Worst Case Scenario
Just for fun I have created a hypothetical worst case scenario to see if my finances could survive it. Consider the following events.
The economy contracts. People panic. The Canadian real estate bubble bursts and prices drop by 40%. Stock markets also fall 40%. Jobless claims skyrocket. I get laid off from both my jobs on the same day without notice. On my way to the employment insurance office I get T-boned by a distracted driver and my car is written off. The next day a devastating 7.5 magnitude earthquake hits Vancouver hard. My apartment building suffers heavy structural damage and is deemed unsafe to live in.
Okay, so things may look bad on the surface. But it’s actually fine, because the whole point of creating a stress test is to protect ourselves against these unlikely what if scenarios. I may be frustrated after all the unfortunate events, but at least I’ll still be okay financially. 🙂 Here’s how things would play out:
- My combined severance package would be about $10,000 of after-tax income, enough for 3 months of living expenses.
- I would qualify for employment insurance benefits.
- My dividend stocks would continue to pay out regular distributions like they did during the last recession.
- I have a stash of gold and silver in case I need emergency cash.
- Auto insurance will cover the car accident.
- Earthquake insurance would cover the damage to my apartment. Strata owners would hold meetings with the property manager to discuss how to move forward using 3/4 votes as per the bylaws. The insurance company would pay our housing costs if we have to relocate somewhere else temporarily.
Luckily my finances would appear to still hold up through all the turmoil. I would have plenty of time and liquidity to get back on my feet.
How to Stress Test your Finances
Step 1: Make a list of all the risks, uncertainties, or potential issues that could effect your money or financial lifestyle.
Job loss, flooding, rising interest rates, upcoming major purchases, etc
Step 2: Go through the list one item at a time and make a plan to deal with those risks or issues.
Job loss -> Understand how much employment insurance you qualify for. Find ways to diversify your income.
House damage -> Purchase adequate insurance for fires, floods, burglary, etc. Know your deductible amount.
Once we have made plans to deal with everything on our list then we should have nothing to worry about anymore. 😉 If we want to be financially stress free this is how we do it. We can even lay out this data in a spreadsheet to easily track everything. Stress testing our finances can help us plan for those what-if scenarios in case they ever happen. Good luck. 😀
Random Useless Fact
In Quebec, the most popular porn search term is “Quebec”