The Real Secret to Personal Finance Success: Your Backup Plan

Don't let a financial iceberg sink you.

Planning is key to so much of personal finance — it’s how we get ahead and stay ahead. Without planning, we just scramble to react, or make decisions that can be bad for us because they aren’t well thought-out. (You know how it is when you’re forced to give an answer quickly, and then later you think of something better you could have said or done…)

But it’s not just planning for things you want to have happen that matters. You’ve also got to plan for the what ifs; the things you actively don’t want to have happen.

Why planning for the bad stuff matters too

Of course, none of us want to lose our jobs, become disabled, get divorced, or deal with any other type of emergency. (I sure didn’t want my son to need emergency surgery a few years back, for example, but it saved his life.)

No one lives a charmed life, so pretending that things will always go perfectly is naive at best and stupid at worst.

Planning for the worst while expecting the best does not increase your chances of the worst happening. In fact, it increases your chances of the best happening, because as you plan for the worst, you see things that you could do to help prevent it.

Create a good backup plan

You’ve got to create a good backup plan — at least for the common scenarios that many people encounter throughout their lives.

What would happen if you lost your job today? What if you came home and your spouse had left you? What if you got into a car accident and needed to be hospitalized, or even died?

Think the scenarios through. If you find yourself short on a good answer to those questions (and stuff like “Well, I’d live on credit cards” isn’t a good answer to losing your job), take this as an opportunity to lay out what your ideal backup plan would look like. And then take steps to get there.

For example, if you don’t know what you’d do if you lost your job, think about what you’d like to be able to do if that happened. Find another job, right? And be able to pay all your bills while you’re unemployed without worrying?

Then think about what you’d need to do to make those desired outcomes happen. (Polish up your resume, network regularly now, come up with other ways to make money, get an emergency fund going, etc.)

Get started

Finally, of course, you’ve got to get started. Don’t let the idea of doing a ton of stuff to improve your chances if the worst occurs overwhelm you. Instead, pick the thing that seems the most doable or fastest, and start there.

For example, you could take a few hours to re-write your resume, or set up an automatic deposit of $x per month toward an emergency fund. As you complete each step in the process and start to see your plans fill out, the next step will be even easier.

If you’ve already got a backup plan for these kind of scenarios, what is it? How did you come to create it? Was experience or panic a good teacher like it was for me?


  • We save cash padding for most of the bad stuff that can happen. For emotional stuff like my spouse leaving me, I would just handle it one step at a time. We’d need to sell this house, I’d find somewhere minimalist to live, and we’d have to divide up our money and stuff. For a death of a family member or friend, I would cry, cry some more, and move on like we all have to with loss. I figure most people with back up plans have similar ways to handle the big stuff.

  • Oh this is so true. I had no backup plan when I hit rock bottom. So I had to go to financial plan B, C and D. My recovery would have been a lot easier if I had an original backup plan.