Income alone doesn’t ensure financial security for you and your family. Financial security also depends on your ability to handle your financial obligations and to save — even during a rough financial period. The following suggestions can help.
Set a Ceiling
If your bank account and wallet are often nearly empty before paydays, you may be overspending and possibly adding some debt to tide you over when you’re short. Setting a spending limit is a practical way to keep your ordinary living costs comfortably below your income. For example, you might allow yourself to spend 90% of your take-home pay (after deducting an amount for retirement savings) and reserve 10% for occasional expenses, such as a vacation, or for recurring obligations like auto insurance.
Build a Reserve
Tapping a credit card when you have to repair the car or cover another unplanned large expense can make such spending costly and add to your monthly cash flow needs. Instead, gradually build an emergency fund, ideally equal to several months of income, that will let you avoid most forced borrowing. Consider keeping this short-term reserve readily accessible in a money market fund or savings account that you use only for putting out life’s financial fires.
Borrowing is easy, but the subsequent payments can become a prolonged drain on your income. Limit your use of credit cards to an amount you can comfortably pay off each month. Take loans only for major, long-term items like a house, education, or a car. Ideally, strive to have any debt you incur generate tax-deductible interest.
Obtain Adequate Coverage
The liability limits that are built into your homeowners and auto policies might not be large enough to protect your assets in the event that you are sued. The cost of increasing your policy limits may be very low relative to the security you’d gain. Also, consider an excess liability (or “umbrella”) policy to supplement the covered limits on your homeowners and auto insurance policies. It’s a cost-effective way to protect yourself.
Disability coverage also deserves a careful examination. You may have some short- or long-term disability insurance through your job. But would it replace enough of your pay? And would the qualifying requirements make it hard to collect? For example, find out if your claim could be denied if you’re able to engage in “any occupation,” not necessarily your “own occupation.”
Increase Long-term Assets
Last, make sure that you regularly invest some part of your income for the long term. Whether you use your employer’s retirement savings plan or another tax-deferred account, the best rule is to start early and keep going for as long as you work.
Contact Security National Bank Wealth Management today to learn more in how to achieve financial security.
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