Once you begin building your financial castle, it’s time to build your moat. This is absolutely critical for long-term financial success. What good is having a castle if you have no way to protect it?
This is going to be the least sexy and the least glamorous part of the financial independence process. No one really enjoys talking about insurance or planning documents, but things like these are absolutely vital to your long-term wealth.
You’ll hear people and experts talk about building an investment account or buying real estate, but they’ll rarely mention insurance. The hard truth is that your retirement (or entirement) will come on your personal balance sheet, not your business ledger. You need to make sure that not only have you accounted for the lifestyle you want to lead, but you build in protections to make sure you don’t lose your hard work.
The easy part is the daydream. It’s easy to picture the way your life will look 20 or 30 years from now, when you’ve obtained that surplus or superfluous lifestyle. You probably don’t have visions of insurance policies dancing in your head, though.
Planning for the future means planning for the entire future, investing in boring things like insurance and making sure you have proper estate planning documents in place. Yes, this even means drafting a will and trust. If you’re 35, old age seems like it will never happen. Trust me, it will hit you harder than you can ever expect.
Without proper planning, you’ll run out of savings at the worst possible time in your life. That’s why it’s better to start thinking about the end game now, instead of scrambling later in life.
To build your moat, you will need liability insurance, disability insurance, a will and trust, a personal umbrella policy and a life insurance policy. These are just the basics to ensure the lifestyle you’re building will remain the lifestyle you enjoy, no matter what.
This is the nitty-gritty part that you won’t find on the cover of a magazine or flowing from the mouth of so-called entrepreneurial experts. Just as you needed to set your foundation by ensuring that you can save for a sufficient lifestyle, you need to make sure you have your assets and life protected.
This isn’t advice you’ll get from your financial advisor, who has helped you build the castle, or a salesperson, who just needs to close a deal. Neither of these people are able to take a holistic view.
At the end of the day, the only person who truly has your long-term health and wealth in mind is yourself. Build as many protections as you can.
While you can’t predict exactly how long you’ll live (and the younger you are, the more important it is to take care of your body and form good habits), you can predict exactly how long you’ll be able to live off your savings. Use the formula that you know in order to cover for the variable element of your lifespan. Plan for a few years past 100, just in case.
You can assume the absolute worst for your later years. You need to make sure that the financial castle you’ve planned for is able to withstand illnesses, lawsuits, unexpected costs and planned expenditures such as your kids’ college funds. There will come a time where you’re unable to keep building your empire, and that is when the moat around the castle becomes of utmost importance.
Planning your moat in your 30s or 40s is a necessary task in order for your retirement or retirement to go as successfully as possible. Building that moat may seem boring, but later in life, you will be glad you did.