When we start with a project, we make plans, document them and weigh in different plans. Then we select a plan to work with. Then, there, we also have a backup plan for the original one, called as a fall-back option. The backup plan is not documented as detailed as the main plan, though. Still we start with a plan B, partially documented. Your personal finance is just another project, there’s little difference between your work project and a personal finance management.
Applying the same project management method to our personal finances, should we not have a financial backup plan? What if there’s a new family member, what if we lose someone? What if a disaster strikes? Or even what is our plan if another economic meltdown occurs today? To meet with any unavoidable circumstances that may affect our financial life and health, we should be ready with a backup plan, the plan B.
Why have a backup plan for your finances
Let’s say you have a goal for mortgage pay off in 10 years, and suddenly due to illness to one of your family members, you need a large chunk of cash even after insurance coverage. In all probability, the money you will either take away from emergency cash or you will break into another investment and do a premature withdrawal (may even be from your retirement saving). Worst case, you will borrow money with interest.