4 Steps To Disaster-Proof Your Finances
Financial disaster can strike unexpectedly or be caused by careless spending behaviours. It’s important to be conscious of this so you can have a preventative plan in place.
This is a key component in understanding debt and its potential impact on your life. For your convenience, we’ve put together a short list of things you can do to disaster-proof your finances.
1. Make Sure You’re Properly Insured
There are a few types of insurance that help disaster-proof your finances. The first is one we don’t like to think about: life insurance. It’s more for the family members that you leave behind than for you personally, but you should have it, especially as you start a family of your own. Protect your loved ones from the crushing debt that often comes after a major household earner passes away. Other insurances you should include are medical insurance and homeowners’ insurance if applicable. If you’re getting on in years, you might also want to consider long-term care insurance to cover nursing homes or LTC facilities. These are all areas where unexpected expenses can run several thousand dollars, so it’s worth paying the premiums.
2. Create A Budget So You Know What Your Expenses Are
Spending money without knowing exactly how much you can afford to spend is a surefire path to financial devastation. Spending a few hours creating a budget can prevent this. Make a list of all your expenses, even the small and infrequent ones. Compare that to how much income you have coming in. The remainder is what you have left over to work with. (You can eliminate unnecessary expenses if you’d like to have more flexibility for emergencies, savings, or paying off debt.) As part of this process, put together a savings plan. It’s prudent to have an emergency account that you can draw off when life throws you curveballs. It’s also a good idea to start an investment portfolio and a retirement savings account. These give you an added security blanket and can help ensure financial stability in your golden years.
3. Avoid “Get Rich Quick” Schemes
Hitting the lottery is not a financial plan. Play if you like, but don’t count on winning that big jackpot to cover your living expenses. Life generally doesn’t work that way. Disaster-proofing your finances requires hard work, not a random game of chance. That doesn’t mean you shouldn’t play, just make sure lotto tickets are in your budget. This same principle applies to “business” opportunities that look like get rich quick schemes. If it looks too good to be true, it probably is. Carefully review any business venture and make sure income estimates are realistic. Don’t be that person who fails because you believed the hype about something you saw on the internet.
4. Don’t Buy What You Can’t Afford
This is the simplest suggestion on this list and maybe the most difficult to implement. We all want that bigger house or nicer car. The question is, “can you afford it?” Just because the bank will approve you for the loan or mortgage doesn’t mean you should follow through with it. Taking on too much debt can make your finances unmanageable.
Life is full of surprises. Some of them are pleasant and others can cause financial disaster. It’s best to be prepared for anything, and the suggestions above should help you do just that.
About the author: Kevin Flynn is a former fintech coach and financial services professional. When not on the golf course, he can be found travelling with his wife or spending time with their eight wonderful grandchildren and two cats.