Risks and habits that can derail your financial plan

A well-constructed financial plan is more than a piece of paper. It's a powerful tool that allows you to take more control of your money and enables you to care for others, pursue meaningful work, participate in hobbies, give to your community and enjoy time with your family and friends.

Of course, life is always in flux, and its many what-ifs can threaten to derail your financial plan as you navigate various life stages and situations.

Here are some scenarios you may want to plan for and other factors to assess that can help you strengthen the foundation for your financial house, fill gaps and tackle financial stressors.

Few of us will make it through adulthood without significant upheavals to our lives and finances. Some are personal, some are economic. Here are five common what-ifs and how to plan for them:

Layoffs, position eliminations and firings happen. Even with severance and unemployment assistance, losing your job often means dipping into savings to pay for necessities. One way to work a potential job loss into your financial plan is by establishing an emergency savings fund. Accumulating at least three to six months' worth of living expenses can keep you from raiding your retirement savings or going into debt during an already difficult time. Consider also securing individually owned contracts for life insurance and disability insurance, and any other types of coverage you may count on as an employer-offered benefit. Those policies often are not portable, and you'll want to make sure you and your loved ones still are protected in case the unexpected happens while you're searching for your next opportunity. Having individual coverage makes portability less of a concern and supplements employer-sponsored coverage.

No one expects to get sick or hurt, but a cancer diagnosis or serious car accident can turn life on a dime. In fact, 1 in 4 of today's 20-year-olds can expect to experience a disabling event before they reach retirement age, whether it's for a few weeks or a long-term change in their ability to work. When this happens, medical bills can accumulate quickly and feel unmanageable—especially if it's accompanied by a loss of income and health benefits.

That's why long-term disability insurance can play a critical role in your financial plan. It can replace up to 80% of your income if you can't work for an extended period due to illness or injury. It also can decrease or even prevent dipping into assets you've accumulated over the years that may be earmarked for another purpose.

The market is constantly fluctuating—sometimes more sharply and unpredictably than other periods. Often, short-term losses are to be expected and are part of the risk involved with investing. Some investments will lose money, even in the long run, while others will increase in value. But a prolonged economic downturn at the wrong time—near the beginning of your retirement, for example—could mean a big hit to your nest egg.

Instead of relying on reactionary trading in hopes of growing your money (which can be similar to gambling), it's critical to develop and stick to a dynamic and diversified portfolio as part of your financial plan. A financial advisor or portfolio manager can help ensure you're spreading your investment dollars across asset classes such as stocks, bonds and real estate, which can help mitigate risk and stabilize your portfolio's value. The same can be said of diversification within an asset class, such as owning shares of an exchange-traded fund that tracks the entire S&P 500.

Another common derailer of financial plans is inflation—the gradual increase in the price of goods and services over time. Inflation diminishes your investment returns and purchasing power, but it can be especially impactful when it defies expectations. For example, from 1992 to 2020, annual U.S. inflation was never higher than 4%. But then the pandemic happened. And in 2022, inflation reached 8%—a level not seen since the early 1980s. As a result, the value of people's savings wasn't worth as much. What was previously "enough" for goals like retirement or buying a home suddenly fell short.

While inflation has since recovered, the possibility of a higher-than-usual spike is ever-looming. Your financial advisor can help you adjust the goals or budget within your plan to help cushion for inflation. They also may recommend certain investments that help hedge against inflation, like inflation-protected bonds or I bonds.

Losing a spouse, parent, child or other beloved family member is extremely difficult in every way. As you process your grief, you're also forced to adjust to the major changes brought about by their absence. One of those may be a significant financial gap and shift in your standard of living without their provision.

Working life insurance into your financial plan can help bridge that gap and allow you and your loved ones to continue living comfortably. Your contract's death benefit is typically paid out as a lump sum, tax-free and can be used for any purpose—from settling final expenses and paying for a funeral to making mortgage payments and providing childcare. Additionally, some permanent life insurance policies provide a cash value element that can be accessed for emergencies and opportunities, such as supplemental tax-efficient retirement income.¹

Ever made a financial mistake or simply feel like you're "bad" with money? You're not alone in that. But over time, even small decisions can add up and make it harder to achieve your financial goals. In addition to life events and economic phenomena, here are some tendencies that could be holding you back.

• Accumulating too much debt. Borrowing can help pay for important purchases, but sometimes we misjudge how much we need to spend to get what we need, whether it's a college degree or a car to get to work. What's done is done, but you may be able to limit the damage by creating a plan to pay down the principal ahead of schedule.
• Not budgeting for irregular expenses. Irregular expenses are ones you know will happen but may not occur on a regular schedule or in predictable amounts. These include things like summer energy bills, car repairs, insurance premiums and gifts for special occasions. Estimate their annual cost, then divide by 12 and include them in your monthly budget. Some months you'll spend that money, and other months you'll save it, but you'll always be prepared.
• Failing to save for emergencies. Unexpected expenses are part of life. We don't know what they will be, how much they'll cost or when they will come, but we can still prepare for them. Creating and maintaining an emergency fund can give you peace of mind and keep you out of debt when your dog needs surgery or your job gets eliminated.
• Spending impulsively. We all know what it feels like to have an irresistible urge to buy something we don't need. Learning to identify your triggers, then brainstorming solutions to resist them, can help you manage this habit and live within your means. For example, if work stress makes you want to shop, try calling a friend, taking a nap or watching a movie instead.
• Not accounting for taxes. When you think about the price tag on a major purchase, or even the balance of an investment account, one mistake people often make is not considering the tax implications. In addition, tax law changes inevitably bring savings to some taxpayers and increase costs for others. For example, the SECURE Act of 2019 and SECURE 2.0 Act of 2022 increased the starting age for required minimum distributions from pre-tax retirement accounts such as 401(k)s and traditional IRAs. This change allows more years of tax-deferred growth for some Americans. But the SECURE Act of 2019 also eliminated the so-called "stretch IRA" that allowed beneficiaries to stretch out inherited IRA distributions over their remaining lifespans. This jarring change gives some new beneficiaries just 10 years to take distributions, which can significantly increase their tax liability. It's important to understand how these laws and your overall tax responsibility can affect your broader financial picture.
  

Looking for support with your financial plan?

Working with someone who's knowledgeable about money can be a great way to build your financial house. Learn what questions to ask a financial advisor to see if you're a good fit for each other.

See questions to ask a financial advisor

Whether life is going great, or you're stressed and overwhelmed, it's easy to let financial planning fall by the wayside. Staying proactive and informed about your finances can help you build good money habits and minimize challenges that may arise from unemployment, economic downturns, and changes to your health and family.

The ongoing support of a Thrivent financial advisor can be one of the best ways to stay financially disciplined. Not only will your advisor work with you to create a customized financial plan, they'll also be there to help with financial decision-making, hold you accountable and tweak your plan through regular reviews.

Many people seek professional financial advice around a major life change, but there's no wrong time to be prepared. Planning can include help with budgeting, saving, investing or insurance—whatever you need. Remember that these tasks are in service of something bigger: Giving you the freedom and financial stability to enjoy a purpose-driven life.