How best you handle major unforeseen expenses, health issues, job cuts etc in the future depends on your financial preparation today. This article provides some tips on securing your finances, and determining the strategies that work best for you.
Safeguard your finances with an emergency fund:
Creation of an emergency fund is the best way to protect your finances in the face of emergencies, such as losing your job / incurring unexpected expenses. With cash available to backup, you can avoid raking up credit card debt or touching your retirement savings. An emergency fund should generally be kept in an account which is easy to liquidate. A savings / money market account or an investment account such as money market funds may be a good choice.
Evaluate your health insurance benefits:
Your financial security is threatened when you take ill / are injured – disability insurance makes sure you receive income payments regularly to help pay for housing, food, utilities and other expenses that are to be paid. Disability need not necessarily be an injury while at work. It might also be an injury sustained outside of work, such as cancer or a stroke, which can prevent you from working.
Most employers offer short-term disability insurance – please be sure to find out if it suits your individual requirements. You can purchase an individual policy to supplement the coverage you already have at work.
Examine your credit reports:
Make sure to check your credit reports at least once a year. If you find any errors / signs of fraud, please report to the credit reporting agency and the company where the error / fraud occurred. Please make it a habit to review your financial statements and medical bills promptly.
Provide an insurance cover for your business:
Your business can be protected with business overhead expenses insurance – this can keep your business going if you are incapacitated due to injury / illness. This helps cover overhead expenses such as rent, employee salaries and utility bills.
Protect against liability damages with umbrella insurance:
There is also a possibility of someone injured on your property. Your assets can be protected from potential lawsuits with an umbrella insurance policy. This provides extra liability coverage in addition to that provided by your auto / homeowner’s insurance. To illustrate, let us assume the maximum liability coverage on your auto insurance policy is $400,000 per accident. In addition, you also have a $2 million personal umbrella insurance policy. If a person injured by your car is awarded $ 750,000, your auto policy will cover the first $400,000, and your auto policy will cover the remaining $350,000. Without the umbrella policy, you may have to dip into your future earnings/savings/assets to make the payment.
Protect your retirement savings by planning for long-term care (LTC):
Preparing now for the LTC services will reduce the risk of draining your retirement savings prematurely. One option is to factor in potential LTC costs, and save enough to cover the expenses on your own. The other option is to purchase a traditional LTC insurance policy that covers cost of care in your home / nursing home or other settings.
A hybrid LTC policy typically pays benefits for LTC services and death benefit to your beneficiary on your passing away, reduced by any LTC benefits you received.
Ensure longevity in financial management with durable power of attorney:
A durable power of attorney remains in effect in case you are incapacitated, so that the person you have named in it can step in, and handle your banking, manage your investments, pay your bills and file your tax returns, or any financial tasks you outline in the document. A revocable living trust will help manage assets in your trust in case you are incapacitated.
Please consult your financial advisor on the best option to protect your finances.