How to Build a Financial Safety Net for Your Family
Many American adults have financial preparedness on their “to do” list. In fact, 4 of the top 13 most popular recurring New Year’s resolutions according to USA.gov, are related to money and financial preparedness. Despite the prevalence of these good intentions, most American families are not prepared for rainy days. In the most recent US Census report on families, 62% reported having no emergency savings to fall back on. Furthermore, more than half of American workers have no disability insurance and 40% of American adults have no life insurance. What does this mean? It means that most American adults have big holes in their financial safety net.
Why? Many say that it’s too complicated, expensive, and time-consuming to get done. It doesn't have to be. It’s simple. You die…we pay your family.
“Focus on a few basic pieces to your safety net, from term life insurance and savings to designating guardians for your child in the event that you die unexpectedly. By starting with a limited number of affordable actions, families can begin to build financial strength. The most important thing to do is to get started.”
One reason many people site delaying action is the sheer number of options out there. “We become paralyzed by the amount of information and options and end up letting our indecision lead to inaction. Yet, the one decision that is definitely wrong is to do nothing – no savings and no safeguards,” reports Moret. “Taking even just the first step will help you start to build the confidence you need to continue to build towards a more secure financial future.”
If you are struggling to decide what to do, brightpeak suggests that you may want to keep it simple to start.
Think about savings and safeguards and pick one item from each to get started with. Here are some tips from brightpeak financial on items you may want to have on your financial checklists:
There are lots of things to save for – retirement, education, vacations, or a rainy day. Here are some of the items that you may want to have on your list of savings “to-dos”.
- Create a small rainy day fund. The car breaking down or the furnace needing to be repaired can launch some families into a tailspin. Carve a little bit out of each paycheck to set up an emergency cash fund. Aim for $1,000 to start with and keep building from there. Don’t touch it until you really have an emergency.
- Save for retirement. If your employer offers a 401(k) retirement plan, contribute to it! Especially if your employer will match a portion of your contributions. That’s free money. If not, start contributing to an IRA. Even if you’re just out of college and retirement is 40 years away, taking advantage of the power of compound interest is critical to building a nest egg for the future.
- Save first and spend last. Many people approach savings as the last thing that gets done after all your other expenses have been paid. Reverse that. Make your first expense each month a payment to yourself – into a designated savings, retirement, or education account. Start this habit with only what is affordable, even if it is only $5, and try to adjust your expenditures and commitments so that eventually you can put 20% of your income into the various types of savings that are most important to you.
Unexpected things happen to all of us. That is to be expected. Make sure you are building safeguards to help you protect what is most important to you –your loved ones, your health, your paycheck or career. Here are some of the items that you may want to have on your list of safeguard “to-dos”.
- Get health and dental insurance. If your employer doesn't offer health and dental insurance, purchase them. Your first line of defense in building financial security is making sure you can stay healthy, or get healthy after an illness, so you can keep working productively. That starts with regular doctor and dentist visits to prevent larger health problems in the years to come.
- Get disability insurance. Disability income insurance pays you money if you are unable to work for a period of time due to an illness or injury. According to the disability awareness council, just over 1 in 4 of today’s 20 year-olds will become disabled (due to an illness or injury) before they retire. Since most working Americans depend on their paycheck to do just about everything – pay for their basic needs, wants and savings—losing out on even just a few months of your paycheck can have a significant impact.
- Buy life insurance. Term life insurance is the most straightforward and affordable form of protection for your family’s safety net. In a nutshell, if you die within the coverage period of the insurance coverage (typically 10 to 20 years), your spouse or children will receive funds to help pay the expense of your funeral and to use towards meeting their immediate financial needs.
- Draw up a will. If you’re married or have children, create a will that spells out your wishes when you pass away. Wills are not for old people. Young adults create them too, to clearly designate how you want your assets distributed, and who will become the guardians of your children if both you and your spouse pass away.
- Retool your career skills. The reality of today’s global economy is that 1 out of 2 people will experience job loss at some point during their working years through no fault of their own, according to the Bureau of Labor Statistics. Take the time to routinely invest in your career by learning new skills, and by actively building a professional network.
Build a support network. When times get tough, it’s critical to have people you can lean on. Friends, family and a local faith community can help you through tough times with meals, chores and prayer. Don’t underestimate the strength of family, friends and your neighbors.
Written by Tricia Brown
This blog post is from the Author's perspective and doesn't speak for brightpeak financial. Contact brightpeak if you want to know more about brightpeak products, and keep in mind that they are not available in all states and there are some limitations (some exclusions and restrictions may apply).