Set Up A Financial Safety Net To Take Care Of Life When You Can’t
Do you have a financial safety net? It’s something that should be on your non-negotiable list of tasks to do. It is a bill that comes right after your rent or mortgage bill is paid each month.
My financial safety net kept my family from being homeless, literally, not exaggerating. This actually happened three times, where due to medical reasons, absolutely zero money was coming in for more than one whole year, each time!
Setting Up Your Financial Safety Net Right See What The Experts Say
I always like to enlist the help of experts so that you are getting current and the most accurate tips, tricks and professional help possible. Throughout the post, be sure to check out all the advice the experts came to share with you. Be sure to go to their website, links are in their special boxes and thank them on social media for the help. .
You Need A Net Filled With Money To Pay Bills When You Are In A Bind
What will happen to you and your kids if you lose your job for a few months, what if it lasted two whole years?
What if you get into an accident that may prevent you from earning a living? Or what if some unexpected expenses come up. Do you have anything in place to make sure the bills continue to get paid and your family is taken care of?
Life Insurance And Extra Perks
No One Cares About Your Money Circumstances
When it comes to owing money to a company, they seriously do not care about your troubles with money. They will only care about getting back what is owed to them. You have to set yourself up so that you can try to avoid these situations as much as possible.
Throwing yourself a pity party makes it worse, is never helpful and will cause it to get worse.
You can not tell your landlord or mortgage company that you no longer have any income coming in without any type of negative consequences. They may give you a month, not a free month you still owe that money to them. They surely will not delay taking your money for long, they too have bills to pay. They can’t and won’t allow your circumstances to negatively affect them, they will move you on out their doors.
You can not go to your electric or water company and tell them to wait until some unknown date to resume taking payments again and expect your services to continue. Here in Florida, they literally will turn off your water or electric within twenty-four hours after the final date, and then add on a late fee of $50, and if you do somehow come up with the money to pay your bill, you have the bill, the late fee and they also charge you anywhere between $45-$75 to turn it back on! See how fast it gets more expensive.
You can not tell the bank where you got a lease, loan or mortgage from that you are temporarily out of work, they do not care. The very first thought they will offer you is – when is your first paycheck coming. You can see if they offer a one-time delayed-deferred payment, but that does come along with a consequence of its own.
I see this all the time and I too have been in some of these situations as well. Just because you are going through it right now doesn’t mean it will be like that forever.
The best thing to do is to acknowledge it, accept what occurred, formulate a plan and strategy to help yourself out of it and include a plan and strategy to prevent it from happening in the future too.
Someone gets sick, gets into an accident or some other life event prevents them from heading off to their job. What if some unexpected expenses came up, like major car repair – can I remind you how expensive it is to fix an engine or transmission, ugh, home repairs or some other situation that is monetarily significant.
Be Sure To Have A Strong Bare-Bones Financial FundAt our house, we call it an Emergency Fund. It consists of about 6 months of our bare-bones expenses (i.e. - no housekeeper, lawn crew, cable, etc.) and the intent behind it is for that money to be used in case of an emergency or major unexpected expense. Circumstances that lead to digging into that fund could be job loss, major medical expense, or significant vehicle or house repair. When we were free from consumer debt, we made filling this fund our first priority. After it is completely funded, it only needs to sit ready in a liquid account and replenished after an event that causes you to draw from it.
Many of us are already living paycheck to paycheck…. Now what, …..how will they pay rent or mortgage, how will they eat?
Not only have they been placed in a tough situation which has its own set of negative consequences but they were already sinking, to begin with.
One of the worst things you can think, say and do are to place yourself into the trap. Don’t trap yourself by thinking, saying or doing things that continue behaviors that are not going to lead to something you are not happy with. Never say, if it isn’t one thing it is another, this is negative thinking, which brings you to do negative things and leads you to take negative actions.
It will be quite hard to come up positive for a while, but they know it will be a very long time before that will happen. This takes a horrible toll on their emotional and mental well-being, their physical being is being wrung dry.
If you had such a huge monetary set back it isn’t going to take one or two paychecks to bounce back from that. Some of us cannot even begin to bounce back for at least six whole months!
September 8th Is National 401K Day!National 401(k) Day and, like most Americans, you probably weren't aware that the holiday even existed. That isn't the only thing going unnoticed with people's 401(k). In fact, 92 percent of Americans have no idea how much they pay in 401(k) fees. Paying just 1% in fees could cost someone more than $500,000 in sacrificed returns over 40 years of saving. Blooom,, the nation's first 401(k) robo-advisor that reduces hidden investment fees for 84% of their clients. The three main types of fees:
- Investment fees- These cover the management of the investments within your plan and represent the largest component of fees. They are taken out annually as a percentage of your investments
- Plan administration fees - These are charged to keep your plan running and include record-keeping, accounting, legal and trustee services that are necessary for administering the plan.
- Individual service fees- Associated with optional features offered under a 401(k) plan. May include access to a customer service representative, educational videos or seminars, planning software, investment advice or online transactions.
- Your employer is required by pay in 401(k) feesemployer how much you are paying in fees and where those fees are in your statement.
- For help with those hard to find fees, check out bloom's free hidden fee calculator to see what you could save in 401k fees. It’s one quick and easy thing to do on National 401k Day.
- Bills Do Not Have An On Or Off Switch, There Isn’t Even A Pause One Either. They Keep Coming. They Include Late Fees, A Negative Effect On Your Credit Score And Interest Too
Plan Ahead, Look For Rebates and Discounts, Eat Your Own Tasty FoodsResearch airfares. The rule of thumb is to never pay full price on anything while booking a vacation. Sign up for email newsletters from hotels, airlines and third-party travel sites so you’re notified when there’s a sale or price drop. You can also save money on flights and hotels by shopping through cashback rebates sites such as TopCashback.com and receive cashback on major retailers including Expedia, Hotels and more. You can receive up to $16 cashback for international flight tickets purchased with JustFly or you can get $15 on flights bought at FlightHub – even for airfares that are less than $60! Set a budget and track your spending. Manage your spending to know if you’re under, on, or over your budget. The best way to keep track is by budgeting your daily expenses into categories such as accommodations, transportation, and food. Track your spending by keeping a transaction diary either on paper or on your phone for easy access. Plan your travel Itinerary. Book reservations, tours, and transportation at least a month in advance. “In advance” could be months prior or simply an hour ahead. Consider searching the ‘things to do’ tab on Expedia for fun near your vacation destination or the ‘local tab’ on Groupon for discounted activities. Not only will you have a better idea of how much to budget for but you won’t overspend on last-minute decisions! Pack lunch and snacks. Instead of dropping money at the airport or on the plane for snacks and meals, consider packing your food to save money. You can also bring a travel, reusable water bottle and fill up at a water fountain to avoid paying increased beverage prices! Skip the rental car and opt for local transportation. Depending on your travel destination, you can easily research transportation options to get you out and about. Whether it is public or hotel transportation or Uber/Lyft, you can significantly cut costs and see more in town when you choose public transportation! Choose the right season to travel. The travel industry has jargon regarding times to travel- peak season, shoulder season and off-season! More often than not, you will find special deals and steals on travel for off-season trips. Peak seasons are usually during holiday breaks, which makes it difficult to find affordable flights and rooms. My best advice would be to plan your trip during the low season to give yourself cheaper options!
What Is A Financial Safety Net
For my family, what I teach my children and what I tell others is that a financial safety net isn’t just a figment of one’s imagination, it isn’t a dream to have, it isn’t a luxury either.
It is serious, it is and should be your priority to create and plan one that you can easily and comfortably implement.
A Financial Safety Net Includes
- At least 6 months worth of essential living expenses
- At least $2,000 in an emergency fund, more for larger families
- Some sort of investment that increases in value
- Retirement funds
Automated Deposits For Effortless Savings
An effective money saving habit all people should begin working into their monthly financial routine is to schedule automated deposits into your savings account.Although you can set up these automatic deposits through your bank and various payroll companies, apps like Digit (Digit.co) also help you save money without having to even think about it. When using your bank or payroll company to make this savings deposit, the amount deposited is generally based on a given percentage or a set dollar amount. With Digit, its sophisticated algorithm monitors your monthly income and daily spending habits to determine how much money to pull and deposit into your savings account - allowing you to start saving with little to no additional effort or afterthought. Implementing these kinds of monthly direct deposits into your saving accounts will only result in producing beneficial money habits and will kick start your financial safety net.
Yes, I do recommend that you keep them all very separate! This is very important especially for those that have lots going on and can easily get sidetracked.
Those four parts of your financial safety net are important equally. I wouldn’t recommend doing only one or two because that leaves open space for any type of financial crisis in those areas.
The money can be used in a pinch for all sorts of reasons.
A Financial Safety Net Is A Bill You Need To Budget For
Now is the time to get started, I teach my own children they need to start with their very first check. Your very first paycheck in your entire life is a check to start with. This helps set you up for positive financial habits.
- However, you can still change your financial awareness and money-saving habits today, even if you are fifty years old.
Include FDIC Long-Term Savings InsuranceBuilding a financial safety net is so important. The money can be used in a pinch for all sorts of reasons.
Having six to nine months’ worth of living expenses tucked away in an interest-bearing account is a good beginning. Figure out exactly how much is needed per month to have all the essentials taken care of, such as rent or mortgage, personal care, utilities, insurance, food, and gas to get back and forth to places.
Then start saving as much money as you can until you have built up this safety net. You can easily add the savings you gain from your Coupon Savings Challenge or the 52 Week Savings Challenge to help you get started. The money saved from using sales, coupons, giveaway winnings, and rebates is a very good way to get started.
Reduce the amount of money you usually spend on going out to eat, going to the movies, buying the newest TV and tech gadget to add that into your savings account until you’ve saved enough to have a sensible financial safety net.
When Is A Good Time To Implement A Financial Safety Net?
You can start your financial safety net at any time during the year. One of the easiest is during tax refund season. Start with the very first paycheck that you can, if that means next week’s check or you were able to begin literally with the first paycheck of your life.
Start implementing the habit of adding to your financial safety net as often as you can, when you make it a bill, this means at least monthly.
Strategy Idea: You can take at least 30% of your refund to open your savings account. You can use the full 30% in one account say, for example, your living expenses account.
Or you can split it up for example 10% into living expenses account, 10% into an emergency fund account and the other 10% into a retirement fund account. This is just an example to help give you ideas of how to begin.
Don’t just stop there. Make it a goal to add to your safety net monthly and go back and revise your numbers from time to time. Your living expenses may go up or down over time and you can adjust how much you need to set aside to quickly access money accordingly. I recommend rounding up, it is always better to have more to use instead of being short.
Be Sure To Check And Update Your Coverage
Making sure that you are covered in all areas of life is a huge task, but it is very important. Make sure that your insurance policies are up to date and based on the coverage you need or anticipate.
Your coverage is important to your financial safety net because you can try to get something covered under any type of insurance such as car insurance, health insurance, home or renters insurance, life insurance, disability insurance and don’t forget about those warranty insurances too.
Life and disability insurance are another important part of your financial safety net, as is your retirement money. Do you have a plan in place to continue to cover your living expenses (or those of your family) when you can no longer work?
Call up your insurance agent and go over your current coverage. Make sure the insurance you’re paying for will pay out what you need and if not, make adjustments.
Long-Term Disability Insurance - A Crucial Part of a Financial Safety NetAccording to a 2017 study (attached) done by LIMRA (source: Life Insurance and Market Research Association) and Life Happens, over half of the households (in some cases, almost 70%) would have trouble paying living expenses either immediately or after several months if they lost their primary wage earner. The average disability claim is between 31 and 34 months (source: Average Disability Claim Stats) What makes things more shocking is that according to that same barometer study, 65% of people state that “most people need disability insurance” but only 20% state that they have disability insurance. Visit Raymer's site to compute your disability insurance need, Free Disability Insurance Calculator
Once you have those two parts of your safety net firmly in place, consider investing any additional savings into higher interest-bearing accounts. While you may not be able to access any money invested here right away, it will come in handy when you’re dealing with a long-term financial emergency or are ready to retire.
The plus side is that there are plenty of investment vehicles out there that will get you a much better return than your plain savings account at the bank.
Talk to your financial adviser and come up with a plan that’s right for you, your family and whatever the future may hold.
Adopt The 50-20-30 RuleStart building a financial safety net by estimating your cost of crucial expenses, such as housing, food, health care, utilities, transportation, debt and personal purchases to grasp a better idea of how much money ought be in your emergency fund based on your lifestyle. It would be useful at that point to also give yourself a spending cleanse. That means identifying where you’re wasting money, perhaps in monthly subscriptions that aren’t necessary. I urge Americans to aim to build an emergency fund that’s the equivalent of six months’ worth of income. According to the Bureau of Labor Statistics, nearly a quarter (24 percent) of unemployed Americans have been out of work for 27 weeks or more. If you lose your job, that data highlights, there’s approximately a one in four chance you will need at least six months’ wages before finding new employment. “Collecting six months’ worth of money is a good rule of thumb, but sometimes that’s still not enough. Always aim to save more than needed to cover unexpected surprises and still have a balance in your fund after your emergency. This will ensure you’re never left with a zero dollar balance and gives you a starting base to build another emergency fund. Adopt the 50/20/30 rule to help set up a personal budget. Spend no more than 50 percent of your take-home pay on essential expenses such as rent, transportation, food and utilities; 20 percent should go towards a strong financial foundation such as retirement contributions, savings and debt payments, and 30 percent should go to lifestyle choices such as cable bills, personal care, going out, shopping and traveling.
Which Part Of The Financial Safety Net Should I Start With?
I recommend to start off with something that will sustain the bare necessities, which will be your living expenses, without luxuries preferably.
Essential Living Expenses Financial Safety Net
Figure out what your bare monthly expenses are. Pause or lower the plans of all luxury things until you get back on track.
This means lower cell phone plans to the lowest you can get it, yes even if you are under contract you can possibly lower the monthly plan. Lower your internet and cable bill too. Ask for the lowest plan available until you are in a better financial position.
I encourage you to grab the coupons and savings challenge so that you can save the most money on everyday products that you really can not do without. You can possibly keep buying the brand you love if you are using coupons, sales and other discounts to reduce your out of pocket. If you ran out of the brand you normally use and forgot to stock up or missed a stock up deal, then you need to make it a point to use a lesser brand this time and begin planning better for your next purchase.
Pay Yourself FirstSaving does not always need to look like a sacrifice. First, remember there are long-term savings goals and short-term savings goals. A great way to get started for long-term is to see if your employer offers a retirement savings plan that is payroll deducted. The benefits of this are that you can save for the future without even seeing the money leave your bank account. For short-term savings, you can set up your bank account to auto draft a specific dollar amount from your checking to savings on a specific date, just like a regular bill that is auto-drafted. You can use a third-party app like Digit to help you save each month also. This is a great tool when saving for a trip or something fun that's a few months out, you will surprise yourself with how much you can save in small increments. You can still go out to dinner and enjoy life, maybe just remind yourself that the$10 movie popcorn or $8 dessert when at dinner would feel better in your bank account instead of in your belly. Action Step: Instead of giving in to that $7 Starbucks run, take the cash and put it into savings for your future goals (maybe that's future Starbucks run). I attribute most savings habits are difficult for people because they perceive it as a loss, rather than a replacement. We have too many of us who seek instant gratification rather than long-term longevity benefits. When we think of savings as someone or something taking away from us rather than a gift we are giving to ourselves, it can make it harder to save. We have so many bills to pay or financial responsibilities to meet, sometimes we forget to get ourselves onto that list!
- You should always remember that one of the primary principles of building Wealth is to Pay Yourself 10%. That's money you've earned and deserve to keep.
Check with your utility or water company if they have any type of prepaid services or other options available to help lower your costs too. For example, my electric company, of course, has energy saving programs and equipment but they also offer the ability to pay the same amount each month. If the bill is less than what we sent in, it is still applied for those times where we have spikes in electric usage.
Ideally, this part of the financial safety net should include rent or mortgage, utilities, water, trash, some type of phone service even if landline with answering service, food, car related like insurance, gas and minor maintenance, personal care and medical.
Have a goal to have three entire months saved up. Once you reach that goal, move to the next goal, six months. I recommend a whole year, you never know what can happen. I have been in situations where I only had that small goal of three to six months.
I found myself unable to work due to a car accident for at least eighteen months, and I work from home!
Emergency Savings Financial Safety Net
After you have your first goal of having three months worth of your essential living expenses saved, work on your emergency fund.
The emergency fund is something that can be used in addition to or to extend your living expenses net if need be. It can be used to replace a roof, a totaled vehicle, or an unexpected medical procedure that your health insurance refuses to cover.
Life Insurance And Extra Perks
An emergency funds amount will depend on your individual needs and will be different from others. I recommend to think about what could go wrong, you know those annoying “what if’s” that we want to avoid. Figure out what those what if’s are and their costs, it is kind of like preparing for a disaster before it occurs.
An emergency fund can be for medical reasons, $2,000 for a single person without health issues and wants to just ensure they have money for “just in case”, you just never know. If you have a larger family, you may want to think in terms of having a set amount per person for those emergencies that may arise.
So what happens if at the end of the year and those funds were not used, then what? That is really up to you. If I am putting money every month into an emergency fund and I did not spend a penny of it all year long and I went over my minimum savings goal, then I would probably think about transferring some into an investment account.
For example, my minimum emergency fund is $7,000 and at the end of the year I had $10,000, that leaves me with a $3,000 “overage”. I would then consider the possibility of taking that $3,000 and starting some sort of investment plan, this means that the money will increase over time and be more beneficial to my overall financial portfolio.
I would continue saving into this account. I would probably increase my minimum. Emergencies can mean lots of things, they can include medical, child care, and can be used for many other reasons that you deem to be a true emergency.
Create A Business Financial Safety NetFor small business owners especially, when revenue is strong with your business add more money to your savings. Ease into building an emergency fund gradually, which will provide an excellent financial cushion for your company in the event of a potential downturn.
Investments Financial Safety Net
Now that you have begun saving up money for the two most important parts of having a financial safety net you want to begin working towards your financial future!
This means searching for the best ways that make financial sense to make your money work for you. For this you want to do some serious searching, you need to ensure that who you go through is legal and legit. You need to have solid testimonials from reputable investment agents and investment companies.
The amount you begin your investment financial net is up to you, your budget, your needs and of course your goals.
Things to consider when investing is who it is through, any penalties for taking money out early, percentages, interest rates, economic status and what happens in an economic crisis, going out of business and other relevant information that can mean serious money business.
Retirement Financial Safety Net
Once you have some substance to your financial portfolio, you have to think about retirement. How will you pay for things when you go into retirement. I know it can be hard to think about something that can be seventy-five years away from now. However, it really is important.
Why it's important to create a financial safety net
- To handle the unexpected. Some unexpected expense always comes up – for everyone. It could be a car repair bill or medical expense. Or it could be routine expenses that suddenly become hard to cover because of a job loss.
- To provide a measure of financial stability. That’s a broad term that means different things to different people. For some, it is enough to make it through a month and pay all bills. For many, it’s the ability to save a certain amount each month. For others, it means the ability to send their kids to college or to take a vacation. For still others, it addresses long-term, lifelong financial security.
- To avoid rushing to a credit card (or worse, payday loan). How much to save will depend on each individual’s or family’s situation.Conventional wisdom holds that families need to save six-nine months’ worth of basic living expenses in an emergency fund. That may sound daunting. The key is to start with the level of expense that causes you to rush to a credit card. Is it a car repair bill for $250? A medical bill for $500? That is the amount to start with. Have at least that available, and keep building.
- Per above, start small. And realize that the ultimate goal – six or more months of living expenses – is not the same as salary. It is the amount to cover essentials only. In an emergency, you don't fund vacations, fancy new clothes, dining out or other luxuries (big or small).
- Pay mortgage or rent first. Never risk your home. Always pay the mortgage (or rent) before paying any other bill.
- Pay credit card debt next. Few, if any, investments will return as much. And having no credit card debt provides a financial cushion itself.
- In general, contribute to retirement savings once the emergency fund is solid. However, if working for an employer with a matching program, not participating is like giving money away.
- Make the emergency part of the budget – which means you need to have a budget first.
- Establish a monthly savings goal and turn that into a "bill" to pay other bills. Or do it weekly. Each week, transfer $10 to a savings account, and you'll have $500 in a year.
- Get creative to generate additional income you can devote to the fund. Sell unneeded items on eBay, hold a yard sale, or put change into a jar every evening. If you have a one-time financial gain (e.g., tax refund, commission check, bonus) coming, put it toward the fund. Maybe you have skills where you can turn a hobby into a part-time money-making enterprise. Or babysit, tutor, do yard work or other part-time work.
- Bill yourself. Some financial institutions let you arrange automatic withdrawal from your checking account to a savings account.
Go to your local pharmacy and you will be reminded of just how important it is. The health care system as it stands as of writing this, September 2017, is all up in the air. Health care coverage is slowly dwindling, insurance companies are lowering the amounts in which they pay out, they are also removing services they will pay for altogether as well.
In your retirement years, will you have a $12,00 prescription bill to pay for? How will that get paid if you don’t set it up today to ensure your retirement days are filled with more fun and less stress?
What about your mortgage, your property taxes, doctor bills, food and many other day to day expenses. What if your employer doesn’t have much of a retirement package to offer you or something happens and you no longer can get it?
Just Start Saving And Don't Fall For Temptation
Restarting Or Replenishing A Financial Safety Net
For my family, we have to restart at times because when we are going through tough times, of course, we cannot add money to the savings accounts.
We are taking money away instead of adding to it.
We try to use the barest basic minimum so that we are not overdoing it and putting ourself further into a burnt money pit.
This year we were hit with a sudden move plus we didn’t prepare fully for hurricane disaster and needed to buy storm supplies. We never experienced having to use a generator, so we had zero clues the daily cost of using one for an entire week, plus the hurricane killed our deep freezer, so the food and freezer were another big hit. so we are now replacing those funds so that it will be there just in case of another issue that comes up.
If you use yours, be sure to restart with your normal routine, so unpause your savings freeze so you can resume saving money again.