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Financial hardships can hit at any time. The best way to make sure you can weather the storm is to thoroughly prepare yourself for unexpected financial disasters ahead of time. These 5 steps will give you a solid financial foundation that can support you through an uncertain future.
Evaluate Your Budget
You must have an intimate understanding of your financial situation to prepare it for the future. If you have only a vague idea of what you spend on gas, groceries, bills, and entertainment each month, you may have a lot of work ahead of you. Comb through your budget until you can account for every penny you earn and spend. With the cold hard numbers in front of you, you may find many areas where you’ve overspent without knowing it.
Set Aside Significant Savings
Most financial experts recommend saving at least three months of living expenses to cover you in a financial emergency. This fund will help you survive a job loss, major car repairs, medical bills, home repairs, and other emergency expenses. If three months income seems like an impossible amount, Dave Ramsey recommends beginning with just $1,000, which is a more achievable sum. Families living from paycheck to paycheck may need to get creative about ways to save extra money. Bear in mind that it’s nearly always possible to cut back a little somewhere.
Banish the Debt Demons
Carrying debt costs you a significant amount of money every month. Once you pay off your debt, you’ll not only free up the funds that typically go toward your minimum payments, you’ll also say goodbye to all the interest you were paying. Pay off your credit cards and other debt as quickly as you can and strive to live debt free for the most financial security.
Prepare for Retirement
Retirement is something you need to plan for as early as possible. If the state of the economy has left you feeling uncertain about the future, providing for your own retirement is more important than ever. If your employer matches contributions to your 401(K), give at least this amount if not more. Avoid cashing out early at all costs as you’ll pay a steep penalty for this and lose a significant part of what you’ve saved. Aim to put at least 10% of your income into retirement accounts.
Diversify Your Investments
After you’ve paid off debt and funded some retirement accounts, you should look into other places you can invest your extra funds. Rather than spending everything you make, strive to invest as much as possible. A diversified portfolio will include stocks, bonds, and some cash. Keep your cash in a savings account that accrues as much interest as possible. If you’re not sure where to begin, use knowledgeable resources like MarketMinder by Fisher Investments to help you get a feel for various investment opportunities.
There’s no need to fret over an uncertain financial future when you’re well-prepared for what’s to come. Smart investments and savings will keep you safe in any climate.
Comment if you agree with the 5 Steps to Prepare Your Finances for an Uncertain Future.
