3 Things You Need To Build A Financial Safety Net
Protect Yourself And Your Family From Life's Unexpected Events
Where do you turn when you're faced with a financial emergency? Do you have money set aside to cover the unexpected expenses? Is there some sort of insurance in place? Without the right financial safety net, you could find yourself in financial ruin. All of that hard work over the years won't amount to much if you don't have the vehicles in place to protect yourself in the event of a catastrophic event.
That is why it's so important to create your financial safety net in order to protect what you have. An emergency fund, long-term disability insurance, and life insurance can all play a vital role in protecting you and your family.
Financial advisors suggest having enough savings in an easily accessible account to cover your living expenses for at least six months in the event of illness, job loss, or other serious emergencies. This is money that you should have in a savings account or other liquid account that you can tap into without penalty in the event of an emergency.
Without an emergency fund, your options for paying for an unexpected expense may end up being paid for by a credit card, which in many cases may carry a hefty interest rate and make your situation even worse. Even worse, without an emergency fund, you might be forced into tapping into your retirement assets.
This alone could put your financial future in jeopardy.
If you haven't started your emergency fund, don't wait another day. The best way to do this is to create an automatic savings plan. When the contributions are automatic, you don’t even realize that you’re saving money. Before you know it you’ve got a nice financial cushion.
Long-Term Disability Insurance
Long-term disability insurance helps replace your income if you are unable to work due to illness or injury. Many people consider this coverage a luxury, but it should be considered a necessity for those who don't have other financial resources they can tap in the event of an illness or injury. Even if you do have other financial resources, would you want to use them to pay your monthly expenses if you were to become disabled? A disability can quickly eat through all of your savings or even lead you to tap into your retirement funds which could have a significant impact down the road.
Ask yourself this question: could you live without your income for three months? Six months? A year? If the answer is no, you need disability insurance. Employers often offer this coverage via a payroll deduction, which may be tax-deductible. You may automatically get short-term disability coverage through our employer, but check to see if they have additional coverage options.
Life insurance is necessary if you have dependents who will suffer financially if you die. There needs to be financial security in place for those that you love. If you don't have any financial dependents, life insurance isn’t completely necessary, although many people also use insurance as part of their estate planning and cash accumulation regardless of their dependent status.
If you plan to buy insurance other than term insurance provided by your employer, you should educate yourself about the pros and cons of the term, whole life, and other types of insurance. You may also want to talk to an advisor about how much insurance is enough.
Once you’re created a financial cushion with your emergency savings and disability and life insurance, you can sleep easier knowing that you have a financial safety net in place that can help keep you protected through even the most difficult situations.