Smart planning helps you keep a hold of your finances even in dire circumstances. It’s never as simple as just budgeting well, but even this alone can give you much more than you’d otherwise have.
You can’t always protect yourself from what the future brings, but you can still keep your assets safe with insurance, a durable POA form, and more. In this post, we’ll show how the steps you take can help keep your finances in order.
Potential Major Financial Changes
Any serious shift in your life can affect your finances and assets. This includes:
- Unemployment
- A death in the family
- Divorce or separation
- Sudden injury or illness
- A natural disaster
- Unexpected legal issues
- Major stock market changes
- A coma
Many of these situations are (usually) completely unpredictable. You can’t wait until the warning signs to put your money away. Even a simple savings account goes a long way toward getting a valuable safety net.
The more diligent you are, the more you’ll be able to protect your finances – even if you happen to have outstanding debts.
Budgeting for an Emergency Fund
You should aim to have at least 3-6 months of living expenses ready at any time. This helps you find a new place to live (if necessary) and gives you time to get back on your feet.
Whatever you put together, put it in a high-yield savings account. The money will earn interest over time and faster than other accounts. You can begin with a small $1,000 goal that gradually increases over time.
Many people choose to donate 10-15% of their paycheck to their savings; it might even help to treat this as a non-negotiable “bill.”
Getting the Right Insurance
Review your insurance plan every year – and whenever there’s a serious life change. This gives you a chance to look for new deals. For example, if you suddenly need to try a new medication, it’s worth looking for an insurance plan that might cover it.
Here are just a few types of insurance that you should have or at least look into:
- Health insurance for medical expenses
- Life insurance to protect your family’s finances after you pass
- Homeowners or renters insurance to protect your home
- Disability insurance (if you can’t work due to illness)
- Long-term care insurance for nursing homes
- Pet insurance for vet bills
If you’re not eligible for health insurance, you might still be eligible for Medicaid. However, there are few alternative programs available for other insurance types. In addition to your savings, it’s worth rigorously dedicating some of your paycheck toward important insurance.
Dealing With Debt Payments
You must pay off high-interest debt whenever you can. Otherwise, this could be the unexpected life event that leaves you in dire straits. Don’t borrow to try and repay older debts; this just leads to a vicious cycle.
Paying high-interest debts first is also known as the “avalanche” method; the “snowball” method, in contrast, focuses on smaller debts first for quick wins. An avalanche saves more money, but a snowball approach can give you more motivation.
You can also usually negotiate with creditors. If you explain your ongoing crisis to them, they might lower your interest rates or give you a more flexible payment plan. In addition, you should report any creditors who violate the Fair Debt Collection Practices Act.
Arrange a Power of Attorney
A power of attorney lets someone take charge of your finances while you’re incapacitated. You’ll have someone in your corner using your money how you want them to – ideally, somebody you trust with good financial acumen.
If you’re the family’s main earner, a POA form will also help your loved ones withdraw money as necessary. They’ll also be able to use the money (including your savings) to pay for your care in the hospital or at home.
You should use an online template to arrange your power of attorney – these free/low-cost forms are always legally binding and include every relevant field.
Your Estate Plan
You need to make sure your assets are ready for any situation, even if that means ensuring that everything goes to your family after you die. A last will and testament sets out exactly how you’ll distribute your assets among your loved ones – just ensure you pick a trustworthy executor.
Your will must be completely thorough and account for every asset you have. Every account and belonging in your estate should have the correct beneficiaries. To this end, you must review your plan regularly and change it to reflect your evolving family dynamic.
It’s also worth putting your savings into trusts. An irrevocable trust, for example, is one you can’t change without a hassle – meaning creditors can’t take your assets from it. Similarly, irrevocable trusts aren’t part of your taxable estate, so they won’t be subject to estate tax before distribution.
Final Thoughts
Smart planning helps you keep a hold of your finances even in dire circumstances. It’s never as simple as just budgeting well, but even this alone can give you much more than you’d otherwise have.
Join the conversation!