Do you have any exciting plans for the new year? Certainly! Maybe you even have too many things you want to tackle. Then, the question becomes, “where to start?” In any endeavor, it’s essential to put first things first. Personal finances are no different.
In the case of financial planning, that first critical thing may not be what first comes to mind. Likely you think it’s to eliminate debt. Hang on a moment. While that reaction is certainly intuitive, it bares further consideration.
Let’s try a quick thought experiment: You have your dream job, you’ve paid down your credit cards, your personal loans and maybe even put a big dent in your mortgage. That’s truly a feat to be proud of! But then, you become disabled, or worse. What happens now? The short answer is that your cash flow suddenly stops. You, or your loved ones, burn through your savings and retirement, turn to your credit cards and even start to get behind on your mortgage. So, given this scenario, what would be the first step to true, deep, long-lasting financial and emotional confidence?
Protecting your assets, including you, is the single most important step in increasing your financial and emotional confidence. Here are three “protections” every working American should consider:
- Health insurance: Even if you’re young and healthy, a serious illness or injury could put your financial future at risk. Navigating the health insurance maze isn’t easy, but try to find coverage that will protect you from medical debt, which is the primary cause of personal bankruptcy.1
- Life insurance: If you died tomorrow, would your loved ones be able to pay essential bills, keep their home and maintain their lifestyle? Life insurance provides a financial parachute for loved ones, and with some whole life plans you may even be able to build cash value to fund things like education.
- Disability insurance: If injury or illness interrupted your income stream for an extended period, would your savings hold you over? Could be tough. The average individual disability claim lasts 31.6 months — nearly three years.2 Disability insurance can help by replacing a portion of your lost income during this period.
Becoming a World-Class Saver
The average American only saves about five percent of their income.3 Set up a personal savings account, if you don’t already have one, and set a goal to save 15 to 20 percent of your income by committing to a budgeted lifestyle. Quick tip: Use direct deposit through your employer—it’s painless. If you get a tax refund, have it deposited directly into savings.
Building a Cushion
If you’re like most Americans, you have less than $1,000 in savings for an emergency.4 Some experts say to build the equivalent of three months in spending. That may not be enough. The ideal is the equivalent of a year’s income. That’s a tall order, and something that will take time, but it if you ever need it, you’ll be glad you have it. Quick tip: Keep the fund separate from your other savings accounts.
Not all debt is bad, but if you’re carrying a heavy load in high-interest loans and credit card debt, you’re throwing money out the window. The average household with revolving credit card debt pays $904 in interest annually.5 Once you put the protection steps in place, look to paying down your credit cards and living within your means. Quick tip: Resolve to pay cash for both small and major purchases. Here are more ideas on how to make smart debt decisions.
If you do nothing else this year from a financial perspective, take action in these four areas, one by one — protect with the right solutions, become a world class saver, build an emergency cushion and reduce your debt. These steps will help you move from concerned to confident, financially and emotionally, to make the most of the new year ahead.
Guardian does not issue nor advise for health insurance. Talk to a healthcare financial professional concerning Health Insurance.
2018-52156 Exp. 01/20