So you think you're in good shape? I hear that. You've gotten through the stock market crash without too much damage, you're not underwater on your house, your job seems secure, and your debt isn't out of control. Things are looking pretty good.
That's great. But are you sure you haven't missed something?
There are a lot of ways to blow through your savings, and most of them are way less fun than a 10-day bender in Vegas (assuming that's your idea of fun). Even if you think you're in great financial shape and riding out the economic storm in relative comfort, you could still be on course to screw it up -- while having absolutely no idea that your doom is imminent.
Things that go boom in your finances
I'm not talking about things like natural disasters or car accidents or sudden, serious health problems. Those things happen, and while we do our best to avoid them, sometimes lightning strikes.
I'm thinking of the kinds of things where it seems like everything's just fine -- you're feeling covered, you're sleeping soundly, but then something very bad happens that you could have avoided with a little preparation or a little more attention along the way. Things where you say, "Wow, was I stupid," only with less family-friendly language.
What kinds of things? Things like these:
Not carrying enough insurance. Sure, property values are down -- but if you bought your house a decade ago, it might still be worth 50% more than what you paid for it. Are you insured for that full amount? Put another way, if your house burns down tomorrow, will you be able to buy something comparable without wiping out your IRAs?
Likewise, have you thought about life insurance recently? Has your lifestyle changed? Are you making more money than when you set it up several years back? If you get hit by a bus tomorrow, will your family have to dig into the retirement funds to stay afloat?
Failing to sell when you should. Holding a cratering stock for too long is a common mistake -- I've done it, Fool Adam Wiederman did it with Allied Irish Banks (NYSE: AIB), and many others did it with stocks like American Capital (Nasdaq: ACAS), Satyam Computer Services (NYSE: SAY), and Toll Brothers (NYSE: TOL), among others.
Most of us just sigh and shrug and try to learn from the experience. But if you've got a portfolio full of these things, and you just let it fester because you can't bear to look… you could end up with not much portfolio at all. Diversify those holdings -- and keep an eye on 'em.
Waging a divorce war. I've seen several feature articles recently about couples who are postponing a divorce for economic reasons -- in other words, they've decided they can't afford (financially speaking) to live apart right now. But there are plenty of times when folks conclude that a divorce is still the right thing to do -- and there are good ways and bad ways to get divorced.
I know of one couple who, despite starting the process amicably, ended up going to war -- retaining brute-force legal teams and waging epic court battles over every detail of their situation. The total bill for that mess was deep into the six figures, completely wiping out a stock portfolio that included shares of Akamai (Nasdaq: AKAM), Amazon.com (Nasdaq: AMZN), and Priceline.com (Nasdaq: PCLN) that had been bought at bargain-basement prices in the wake of the dot-com bust. They were both successful professionals in their early 40s, they had made some brilliant investments -- and they were left with nothing but hard feelings to show for it.
Another couple I know of -- acquaintances of the first -- made an explicit decision to avoid that fate. They hashed out an agreement with the help of a mediator, retained lawyers as a sanity check, and got through the process for a few thousand dollars -- while staying on cordial terms. There was no reason the first couple couldn't have done what the second did … no reason except that their emotions overwhelmed their common sense.
The upshot
These aren't the only ways to make a six- or seven-figure hole in your nest egg, and sadly, many of the worst of them are all too common among folks who otherwise have their financial acts together. But a little prevention and maintenance can head off many of the ugliest ones -- if you know what to do and how to do it.
Speaking of insurance, if you'd like some help double-checking your arrangements, check out the August issue of the Fool's Rule Your Retirement newsletter. This month's installment in the "Year of Fiscal Fitness" series is focused on insurance, with detailed explanations of how to make sure you're fully protected -- without spending a fortune. If you're not a member, no worries -- full access to the current issue and all of the Fiscal Fitness features is yours free with a 30-day trial.
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