Do You Have A Plan If Financial Disaster Should Strike?
One of the biggest steps towards true financial freedom is having a plan for when financial disaster strikes! It’s something that you need to have set up. Yes, I say NEED. What will happen to you and your family if you family suddenly experiences unemployment? What if you incur a large hospital bill? Having a plan in place will make sure the bills continue to get paid and your family is secure.
The 2 Step Plan
You’re probably thinking. Where do I even get started? There are a few hard and fast rules to a solid Financial plan. First and foremost you need an “Emergency Fund”.
Having at least three but preferably six months’ worth of living expenses tucked away in an interest-bearing account is a good start. Figure out what your family needs to comfortably live on if all income stops. Then start saving as much money as you can until you have built up that amount in an emergency fund.
Take a hard look at your current budget and based off of that put the money you usually spend on going out to eat, going to the movies, and other frivolous purchases into your savings account until you’ve saved enough to have a comfortable cushion.
Bonus Steps To Build An Emergency Fund Faster
Take make this step go even faster, add any bonuses, tax refunds or cash gifts as well. You could hold a yard sale, which doubles as a great way to declutter. You could also use some of these apps on your cellphone for an extra $3000 a year!
You can also use Digit to help you save up an emergency fund. It’s an app that transfers little amounts of money into a savings account from your checking account. It promises to never overdraft and it even learns your spending habits to help you save better. You are able to withdraw money with a simple text!
Don’t just stop there. Make it a goal to add to your safety cushion as you can and come back and revise your numbers from time to time. Your living expenses may go up or down over time and you can adjust how much you need to set aside in quickly accessible money accordingly.
Life and disability insurance are another important part of your financial safety net, as is your retirement money. Do you have a plan in place to continue to cover your living expenses (or those of your family) when you can no longer work?
It’s an incredibly good idea to talk with your insurance agent and go over your current coverage. Make sure the insurance you’re paying for will pay out what you need and if not, make sure to cover any gaps.
Additional Things To Consider Doing…
Once you have those two parts of your safety net firmly in place, consider investing any additional savings into higher interest bearing accounts. While you may not be able to access any money invested here right away, it will come in handy when you’re dealing with a long-term financial emergency or are ready to retire.
The plus side is that there are plenty of investment vehicles out there that will get you a much better return than your plain savings account at the bank. Contact a financial adviser and come up with a plan that’s right for you, your family and whatever the future may hold.