A Roof of Protection for Your Financial House

Retirement Daily Guest Contributor

By Timothy Bogert, AIF®

As the song from Porgy and Bess says, “It’s summertime that the livin’ is easy.” OK, maybe not as easy as we might like, but perhaps easier than building a house. Speaking of houses, let us look at how you might go about building a house, and how that parallels to how you might want to build your financial house. 

When you build a house, you begin by buying the property and clearing the land to build upon. Now that you have bought and cleared the land, it is time to construct the house. What is the first thing you are going to do? Pour the foundation. Why? Because without a solid foundation, the house will fall down. You want a solid foundation. 

Tim Bogert
Timothy Bogert

After the foundation cures you put the walls up and frame in some rooms. Then the last thing that goes on are the shingles on the roof. What is the purpose of the roof? Protection. It keeps the elements out of the house protecting the things inside from the rain, sleet, and snow. 

What we want is a roof that is solid so that when the storms occur, instead of penetrating into the house, the roof deflects the storm. 

Roof of financial protection
Aspects of a strong roof

Your financial house is constructed much the same way. 

The foundation of your financial house is cash flow. With a solid cash flow plan, you are in a much better position to weather any storm. 

Our definition of cash flow is readily accessible, steady cash that is liquid and which you have use and control of at any time. This could be savings, money market funds, and cash value from properly designed life insurance. What generally would not meet this definition would be taxable mutual funds. They may be readily accessible, but they are subject to market fluctuation that could make a portion of your financial foundation evaporate. 

Think about what happened back in early March when the market had its meltdown due to COVID-19. If you needed some of this money to weather the “COVID storm,” there is a good chance that part of that foundation became weak. This weak foundation could jeopardize your financial house. 

If you woke up one day in mid- to late-March and realized that overnight your house shifted and was leaning, you would probably do whatever it took to reinforce this foundation to avoid everything else in your house from crashing down. A solid financial foundation that is adequate to get you thru this and any other financial storm is a critical piece of your financial house. Over time, what direction do you want your financial foundation to go? Up of course. A foundation of 3 – 6 months of needed cash flow that is safe and readily accessible can relieve many of the financial storms of life when they hit. 

Once you have solid cash flow, then you can begin to frame the structure of your Financial House. One room may represent your “assets.” This could be comprised of mutual funds, 401(k) and 403(b) plans, IRAs, real estate, and other assets that can provide the opportunity for growth. These assets are typically longer term and appropriate risk assets that you don’t plan on using for several years down the road. Over time, what direction do you want your asset room to go? That’s right – up! 

Another room might be your “liabilities” room. These could be represented by debt such as mortgage, auto loans, or student loans. Most of us have a liabilities room, which is fine, as long as it doesn’t become the biggest room in the house or at least is a room that does not get out of control or cluttered with too much debt. Over time what direction do you want your Liability room to go? That’s right, down. 

The next room may represent your “net worth” room. Net worth is assets including foundation assets minus liabilities. For instance, if your assets equal $500,000 and your liabilities equal $300,000 your net worth is $200,000. As you pay down your liabilities and grow your cash flow and assets, your net worth will grow. This is your “great room” and you want this to get as big as possible. 

Now to protect that great room, the net worth room, we need to make sure we have protected it with a solid roof covered in the right type of shingles. Think about this, if you do not have the right shingles in place or are missing a shingle when the financial storms of life hit, they can penetrate your financial house. If that happens, what direction can your cash flow go? Your assets? Your liabilities, and thus your net worth? Probably not in the desired direction. It is your financial shingles that protect your financial house and each shingle has a specific job to do to protect what you have. 

Unlike your regular house that may be covered by hundreds or perhaps thousands of shingles, your financial house’s “roof of protection” generally includes seven shingles. These seven shingles represent the following:

1-Homeowners insurance

2-Auto insurance

3-Umbrella insurance

4-Disability/ Long Term care insurance

5-Medical insurance / Medicare

6-Life Insurance

7-Estate Plan

Assets-Liabilities-Net Worth

Using your auto insurance as an example, let’s say you are tired of being cooped up in your home for, hmmmm, maybe the last 3 or 4 months (!) and you decide to go out for a drive. As you are driving, you hit my car with me, my wife, and our 13 kids who are also out for a drive since we, too, are tired of being cooped up. This would be an example of a “financial storm.” In this example no one is killed but as we are recuperating, we are watching TV and this nice man with a nice smile comes on and says something like, “Have you been in an accident? If so, call 555-123-4567.” Since he looks nice and we have nothing better to do, we call this nice man who next calls you. However, when he speaks with you, he does not sound so nice and he mentions BIG (financial) numbers that he wants from you!

Now if you are missing an important shingle, or do not have the right type of shingle, this storm of life could penetrate your financial house causing your cash flow, assets, and net worth to go down and your liabilities to go up. In other words, nothing good happens. Did the roof deflect this storm? No.

It is typical that if you own a home and car, you have homeowners and auto insurance. However, do you have an umbrella policy to cover gaps or limits in these coverages? You might want to check with your insurance agent. Disability and/or long-term care should be carefully reviewed as it may have “gaps” or limits that could devastate you financially if you needed to claim on either.

Medical coverage may be covered by your employer and be adequate, but if you are on Medicare, do you have Parts B and D? Without this shingle, you could be exposed. And, whether you are 25 or 105, it is important to have your estate in order. Documents such as wills, trusts, patient advocate, power of attorney, and a Living Will can provide a shingle that you, your spouse, and heirs could benefit from for a generation or generations.

The life insurance shingle is one of the most misunderstood shingles and provides a variety of benefits. It can actually do the work of two or three shingles when you include the death benefit. As mentioned earlier, this can also provide a portion of your foundation with important tax benefits and potential tax-free income.

You might be working hard at building your financial house, but do you take the time to make sure you have the proper shingles? Without them, you and your family could be financially devastated. Most people do not purposely build failure into their house or financial plan, but without the proper shingles, that may be exactly what you do.

The first line of defense, and potentially the most effective defense, for any structure is the roof. The importance of building your roof is like creating a huge umbrella that will cover a broad range of elements or factors in deflecting all of the potentially harmful weather that a structure could otherwise get hit with. But a roof will suffer damage. Check your “roof” at least twice a year and after major storms to spot any damage early.

Have you thought about your financial roof of protection? Have you taken the time to make sure each shingle is in its proper place and can handle its specific job? I know, it may not be as fun as building your dream home, but it is critical to having a strong financial house - a house that could weather any financial storm.

About the author: Timothy P. Bogert

Timothy Bogert CLU®, ChFC®, LIC, AIF® Accredited Investment Fiduciary™, has been working with his clients on comprehensive lifetime financial strategies for over 40 years. He takes his credential of Fiduciary seriously – working on behalf of his clients – at all times! He has been a member of Ed Slott Master Elite Advisor for 14 years.

Securities and Advisory services offered through LPL Financial. A registered investment advisor. Member FINRA & SIPC. The opinions voice in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions expressed in this material do not necessarily reflect that views of LPL Financial.


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