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Are You Prepared for a Financial Disaster?

Financial DisasterThe following post is a contribution from my blogging friend over Financial Debauchery, a money blog that focuses on comprehensive financial planning and strategies for a brighter future. If you would like to contribute to Wise Dollar, please contact us.

You wouldn’t jump out of an airplane without a parachute. You probably also wouldn’t drive down the expressway without your seat belt.

Yet, every day, millions of people do exactly the opposite when it comes to how they handle their money. They go about their day completely wide open to any financial disaster that could overtake them at any given time.

Some claim they don’t have the time to worry about it. Some just simply don’t care. Others just don’t know where to look or how to get started.

In this post we’re going to highlight some of the larger areas of financial protection you should definitely cover so that you’re prepared for the worst of disasters.

Income for the Family After You’re Gone

What if the worst happened? What if there was suddenly no one around to help support or take care of the family?

One thing that many people are completely unprepared for (or even unaware of) is the protection of having life insurance. If you were to die tomorrow, your loved ones would be faced with a major financial burden. They’d first have to figure out how to pay for all your funeral expenses. Then they’d have to cope with the loss of your income. And believe me – Social Security and your employer’s life insurance policy are not going to cut it.

One of the cheapest and best things you can do is to get a term life insurance policy that is 10-12 times your annual income. If you have any questions about whether or not you’d qualify for one, don’t worry. Some providers even offer guaranteed term life insurance policies that will protect you no matter what. By getting yourself some kind of policy, you will be ensuring your loved ones that if a tragedy should happen you’ll be all set for at least a decade or better.

What If You Could No Longer Work?

Death isn’t the only thing that can become a huge financial disaster. There are many people who get hurt and become temporarily disabled for some period of time. When that happens, usually you can’t work anymore. And that means no income.

To protect your family from this, check into a good disability insurance policy. Though they are generally more costly than what you would expect from a life insurance policy, you can shop around to find some decent prices. Plus they can be well worth the money should you ever need to redeem one.

What About a Financial Disaster Now?

There are a lot of things that may not be tragedies but they can certainly drain your finances faster than you can blink. In 2013 I had more than $6,000 in random car repairs to pay for. That’s outrageous!

Unfortunately it doesn’t end there. Basements flood, roofs need repairs, medical emergencies pop up, and we occasionally lose our jobs!

To protect ourselves and keep your finances from going into high-interest debt, it’s recommended that you have at least 3-6 months of your normal income set aside in emergency funds. That will give you the money you need to take care of whatever you have to for at least a few months until you can find a new job and temporarily relieve the pain until we can get back on our feet.

Planning Ahead for the Future

Though most of us know that you should be saving for retirement, not many people really understand that this is a form of financial protection as just as important as any of the other points above.

Saving for retirement protects us by providing income at an age when we are no longer able to earn it ourselves. During your working years you save a little bit every month by putting it into an investment account where it grows tax-deferred. That’s a huge advantage over stuffing the money under your mattress because it allows your nest egg to grow faster than inflation and much, much larger since you’re not paying taxes until you need the money for retirement.

The good news: Saving doesn’t have to be complicated. In fact even following the simplest recommended retirement directions from personal finance advisors could still lead you to savings up and over one million dollars.

A good rule of thumb for saving for retirement is to build up your nest egg approximately 20-25 times bigger than your current income. That will ensure that you can withdraw around 4% from the fund every year for the next 30 years with an extremely low likelihood that you will run out of money.

It All Starts With You

Remember that no one is looking out for your family except you. Not the government, not your work, not your friends. It’s all up to you. Make it a priority to take as much time as you need to look into each of these areas and do what you need to make sure you are protected against the next financial disaster.

 

What are you doing to prepare for a possible financial disaster? What is one thing you think we too commonly overlook when it comes to being financially prepared?

 

 

Photo courtesy of: JSellger2

 

 

 

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John Schmoll is a Dad, husband and veteran of the financial services industry. He's passionate about helping people learn from his mistakes so that they can live lives free from the shackles of debt and empowered to make their money work for them. You can check out his other sites: Frugal Rules, for ways to improve your financial literacy; and Sprout Wealth for tips on different ways to make more money. John has been featured on Forbes, Lifehacker, Yahoo Finance and US News & World Report and more. If you're wanting to grow your blog, check out my blog coaching services to see how I can help you take your site to the next level.

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16 comments

  1. I think we would be okay if disaster hit. We live on one salary basically and we have plenty of insurance in all of the required categories. I like to think we would be okay.

  2. Your comment about not relying on the government rings true. I am amazed at how many people think they have a state disability program.

    We publish information about short term disability, and constantly get calls from people asking where to apply for benefits. We have to break the news that the government is not the answer. They have to take a proactive step and buy a policy before needing it.

  3. Great points. I always recommend people get term-life insurance because it is so inexpensive and extremely valuable. You really don’t want to leave your family behind with nothing.

  4. A few years ago, we felt we were prepared for a financial disaster; however, we started really examining our life insurance and realized that we would not be prepared at all should one of us pass unexpectedly. Last year we reviewed and upped our life insurance and now I definitely sleep better at night.

  5. I believe we could weather a financial storm as we have all the bases covered with exception of disability insurance. We cover our expenses with one income as it stands now so that’s why we haven’t purchased disability. It’s still up for consideration and if we do pull the trigger it should be soon in order to keep the premiums low.

  6. Just starting to get these things in place can be a tall order, especially when you don’t know where to start. No one including me, likes to pay the premiums because we don’t see the true benefit of insurance until something happens. So very important to have coverage in place. This makes dealing with any personal loss one less thing to worry about.

  7. By just reading the “Are You Prepared for a Financial Disaster?” I was stunned because my answer is a big NO. It is really up to me to protect myself from any financial disaster. My mind keeps thinking on how I can prepare for it. Your article has given me something to ponder on for tonight.

  8. We are prepared in several ways. We have an emergency fund for financial emergencies. We have a stockpile of food for natural emergencies (that my wife has got for free through couponing), and probably the most important is that we have developed skills. I have at least 3 different trades that I can fall back on if I ever lose my job (as well as multiple streams of income). I have always developed relationships with people who would be able to give me work if we came into hard times.

  9. I think it is key to be prepared as best as possible because so many things can go wrong like your example of car repairs. Well I had alot of unexpected home repairs this year. Stuff happens. I think the one area we are lacking is disability insurance. I have a long term disability policy through work, but my wife doesn’t have any currently. Other than that I feel that we are adequately covered.

  10. I don’t think about these things so much because I’m single with no dependents. Obviously it would be a different story if I had a family.

  11. Am nowhere near ready if financial disaster struck. I think its one of those things that I procrastinate on thinking that it will be a while until the big one happens. Come to think of it though, maybe I would be well served to slowly and consistently put my financial disaster preparedness house in order.

  12. Great post!! We have been there too: suffered a job layoff and had nothing in savings. Now we are working on getting out of debt and building a nice savings fund so we are prepared for any future financial disasters.

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