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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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