Published On: Tue, Dec 22nd, 2020

8 Financial Safeguards You Need to Feel Secure

We live in an uncertain world. At any point, you could lose your job due to economic stress, budget cuts, market changes, or other factors. You could face sudden, unexpected expenses. Your best-laid plans can crumble at any time. 

If you want to feel more secure financially, you’ll need to put some important safeguards in place; these safeguards are designed to prevent disasters, mitigate the effects of disasters, and help you recover in the long term. 

pixabay/Mashiro Momo

Vital Financial Safeguards

These are some of the most important financial safeguards you can put in place: 

  1. Disability insurance. What would happen if you suddenly found yourself disabled and unable to work? Disability insurance makes it so you no longer have to worry. With a short-term disability insurance policy, you’ll receive ongoing payments and benefits for an injury or illness that disallows you to work for a few months. With a long-term disability insurance policy, you could be covered for many years—and possibly up to your retirement. On top of that, disability insurance tends to be inexpensive (especially if you’re young), so the potential upside is enormous. 
  2. Critical illness insurance. On top of disability insurance, you may consider purchasing critical illness insurance. After suffering a stroke, heart attack, paralysis, or other critical illness, you may face massive out-of-pocket expenses—even with a health insurance policy in place. Critical illness insurance works by providing you with a lump sum benefit payment if you ever find yourself in this position. Start by getting a critical illness insurance quote, and shop around so you can be sure you’re getting the best policy. 
  3. A general emergency fund. Any personal finance expert will tell you one of the most important financial moves you can make is creating an emergency fund. Essentially, your emergency fund is a collection of cash you can use if you find yourself in an unexpected emergency situation; for example, you may lose your job or find yourself needing to make a major home repair. If you have an emergency fund, this won’t phase you nearly as much. Aim to save at least 3 months of expenses, or 6 months if you’re ambitious. 
  4. A retirement fund. Next, make sure you put money into a retirement plan. There are many different types of retirement plans available, some of which may be available through your employer. For example, you may be able to take advantage of a 401(k) plan through your employer, benefitting from a company match of your contributions. Otherwise, you can open a Roth IRA and start investing that way. 
  5. Additional investments in a diversified portfolio. Retirement plans are highly advantageous because they offer tax benefits. But there’s a tradeoff; you usually can’t touch that money until you reach retirement age. If you want more capital available in case of emergency (or if you plan on retiring early), you’ll need to make additional investments through a brokerage account or with other approaches. For example, you can invest in real estate, or invest in stocks, bonds, and exchange traded funds (ETFs). 
  6. Multiple streams of income. It’s helpful to establish multiple streams of income for yourself and your family, and for many reasons. For starters, multiplying your income streams will immediately increase the total amount of money available to you. Additionally, if you ever lose your primary source of income, you’ll have multiple fallbacks to make up the difference. And if you want to change careers or rebalance your portfolio, you’ll have many options to call upon. 
  7. A career backup plan. Speaking of backups, it’s a good idea to have a career backup plan in place. There are many things that could compromise your ability to pursue your main career. You could face layoffs. The market could change. Your job could be threatened by AI and automation. Or you might just suffer from burnout and want a change of pace. In any case, you’ll benefit from having an alternate course of action available to you. 
  8. An updated will. Though it may not impact you directly while you live, it’s important to put together a will to protect your estate after you’re gone. With a will in place, there will be no ambiguity about your wishes for how your assets will be handled after your death; this is especially important if you have a family to care for.  

Putting Your Plan Together

The most important financial safeguard is simply having a financial plan in place—and updating it regularly. You should understand your current goals, your current portfolio, your current budget, and your current risk tolerance at all times. You should know your personal strengths, weaknesses, and vulnerabilities. With the right financial strategies and a proactive approach, you can avoid most financial disasters.

Author: Anna Johansson

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