Planning for the Unexpected at Work, in Marriage, and in LifeLife Insurance
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It’s impossible to predict your financial future, so it’s important to protect yourself from unexpected events including job loss, illness and injury, and even death. These circumstances and more can completely change your financial situation in a single day, especially if you haven’t prepared a safety net.
The actions you take today can help you gain a more secure financial position in the future. These are some of the most effective ways of planning for the unexpected and ensuring that you and your family can recover from a worst-case financial scenario.
Planning for the Unexpected at Work
Losing your job can be a major financial burden, especially if you don’t have savings to draw on until you’re back on your feet. Here are some tips on how to protect yourself from job loss.
Create an Emergency Fund
Contributing toward an emergency fund is a great first step toward financial security, and even a small percentage of your paycheck can make a big difference. Regardless of your current financial situation, you should always have an emergency fund to cover any unexpected expenses.
Building an emergency fund can take months or even years, but today is always the best time to start. It might be tough to budget some of your paycheck for savings each month, but this will become easier as you develop better spending and saving habits.
This must be a top priority.
If you’re having trouble keeping yourself disciplined, make an emergency fund your top financial priority. Set an amount to contribute out of each paycheck and make that the first thing you do before you start spending money on anything else.
On the other hand, you might need to focus on paying off debts or working on other financial obligations before you can start putting more money into your emergency fund. Whatever you can contribute this month will make a real difference, even if it takes time to get to the number you want.
Have at least 3 months’ worth of expenses.
Depending on how much cash you’re able to move into your emergency fund, it could take you anywhere from a few months to over a year to feel comfortable. In general, three months’ worth of expenses is a good goal, giving you the money you need to live comfortably between jobs or cover any other unexpected bills.
Once you have expenses for three months in a saving account, you can start prioritizing other goals without risking your security. That said, you should continue contributing to the fund whenever possible—three months is a good starting point, but life doesn’t always revolve around your financial planning.
Don’t feel discouraged if you aren’t able to reach your target as quickly as you hoped—we all have financial ups and downs, and it’s important to stay committed to your goals even when things aren’t going perfectly.
Make a Budget
It’s easy to start budgeting once you’re working toward an emergency fund, and keeping track of your expenses will help you identify and correct problematic spending habits. You’ll also be able to calculate how much you spend each month in order to determine the number to target for your emergency fund.
While there’s nothing wrong with budgeting by hand, there are also a number of helpful mobile applications that facilitate the process and help you reach your financial goals.
Apps like Mint connect directly to your bank account to automatically import and categorize transactions.
As you work on your new budget, include the amount you want to set aside for your emergency fund each month. If you want to build $6,000 in savings over the next year, for example, take $500 out of your income each month, then budget your other expenses with the rest.
Balance is key.
It may take some time to strike a balance between saving for your emergency fund and living comfortably, so don’t worry if you don’t get it right in the first month or two.
It’s important to be flexible with your savings goals and adapt your approach if things aren’t going as you planned.
Less than one-third of the US keeps a budget, and simply being more aware of where your money goes each month will go a long way toward saving more for your emergency fund.
Planning for the Unexpected in Marriage
While we all hope that our marriage will last a lifetime, the reality is that half of all marriages end in divorce, and there’s no way to predict your relationship trajectory in advance.
Divorce can be an incredibly difficult time both financially and emotionally, but you can protect yourself and your assets by planning ahead.
Enter a Prenuptial Agreement
Prenups are often a controversial topic, but they make things easier for both sides and usually make the divorce process less messy. Couples are more likely to fight over money and assets without a prenuptial agreement, so it’s easy to see why they’re becoming more popular.
You might think of prenups as something for only the extremely wealthy, but they provide important protections regardless of your financial situation. If your partner has significant debts, for example, a prenuptial agreement can ensure that you aren’t left responsible for them after a divorce.
Similarly, prenups can protect any assets you bring into the marriage from being divided during the divorce process. What exactly should go in your prenuptial agreement depends on your individual and shared financial goals, so it’s a good opportunity to communicate about anything important before you get married.
Prenuptial agreements can be voided if they’re found to be unfair, especially if they were brought up just before the wedding date. It’s important to talk openly to your fiancé(e) well in advance of the wedding to give the two of you time to work on an agreement that you’re both happy with.
Maintain Separate Finances
You’ll probably have at least some joint accounts during marriage, but that doesn’t mean you can’t also keep your own accounts and credit cards. Having your own savings will go a long way toward living more comfortably through the divorce process, when most of your joint money will be tied up.
Separate accounts are also easier to keep after a divorce, whereas you risk losing some of whatever you’ve contributed to joint accounts. Keeping your own accounts simplifies the process and ensures that the money remains your own.
Freeze Joint Accounts
You might not need to freeze your accounts if you’re going through a relatively amicable divorce, but the last thing you want is for your partner to withdraw the money before you even get to arbitration. Freezing joint accounts protects your money and forces both sides to wait for a legally binding decision.
Of course, you probably won’t be able to freeze these accounts if you don’t have your own savings and cards to fall back on. That’s why it’s so important to keep separate accounts throughout the marriage rather than being dependent on joint assets in the event of a divorce.
Avoid Unnecessary Expenses
It’s generally best to put as much as you can toward loans and other debts, but you should pay as little as possible on joint debts until the divorce is finalized. If there’s a chance that you might not be found responsible, there’s no reason to make more than the minimum payment.
Similarly, you should stop investing in anything that might end up going to your spouse. Cancel any home improvement projects, get your own cell phone plan, and take your partner off your car insurance.
Planning for the Unexpected in Life
Beyond job loss and divorce, there are a wide range of other circumstances that can affect your finances and those of people close to you.
Illness, injury, and disability can substantially change your earning potential or force you to take extended time off of work.
Your death can also put your family in a very difficult financial situation, especially if you don’t prepare for these events in advance.
Like an emergency fund, your life insurance policy is an inexpensive way to give you and your family financial protection no matter what happens.
Life insurance isn’t something many of us think about when we’re young and healthy, but coverage often grows as you stay on the same plan, and there’s no way to predict when the unexpected will happen. It can be more difficult to acquire coverage when you’re older or have health problems, so it’s always best to look for life insurance before you need it.
In addition to providing a safety net for your family after your death, many life insurance policies pay for common costs like funeral and medical expenses that aren’t covered by other insurance. Life insurance is the best way to protect your family in a worst-case scenario.
Term vs. Permanent Life Insurance
Life insurance comes in two general categories: term and permanent. Term life insurance provides protection for the length of the term, after which you’ll need to renew your coverage, move to a permanent plan, or stop being insured.
You’ll hopefully never need to use your term life insurance coverage, but the protection it provides is extremely important. Costs related to death can be extremely high, not to mention the difficulties your family will experience living without your income.
Permanent life insurance covers you for your entire life but is usually more expensive. It also allows you to grow your coverage as you make contributions over time, while term life insurance plans provide a fixed amount for the duration of the policy.
Term life insurance is in general much less expensive than permanent life insurance. You are only paying for the death benefit with term life insurance and the policy is good for only the specified period of time. Permanent life insurance is generally more expensive as coverage remains throughout the life of the insured and there is potential for cash value build up and additional benefits during the life of the insured.
Getting Life Insurance
In the old days, getting life insurance meant spending a lot of time filling out forms and perhaps even seeing a doctor for a medical exam. (Even now, people can still opt for this process if they have special needs.)
Today we have companies that leverage technology to make sure that the process of obtaining life insurance is as easy as possible.
And one of the best companies doing this today is Bestow.
If term life insurance is what’s best for you, Bestow offers a two-year plan that’s intended as a stopgap along with ten- and twenty-year term plans to give you long-term coverage in case of unexpected death.
Bestow makes getting insurance easier than ever, allowing you to apply by simply answering a few questions and selecting the plan that’s right for you. You’ll be able to find coverage in just a few minutes without the medical exam or other inconveniences that may be involved with other life insurance providers.
Bestow offers affordable coverage options that should fit into any budget, making life insurance an easy decision for anyone with family dependent on their finances. Like an emergency fund, your life insurance policy is a cheap way to give you and your family financial security no matter what happens.
Life insurance protects your family in the event of your death, but it won’t cover anything if you’re injured or otherwise disabled in a way that prevents you from working. Disability insurance is a critical form of protection for both you and your loved ones, especially if you work in a field with a high risk of injury.
Some businesses provide disability insurance to their employees, so you should ask someone in your HR department if you’re not sure about your company’s policy. Even if you do have some coverage, there’s a good chance that it won’t be enough to support you and your family in the event of a long-term injury or illness.
Like life insurance, disability insurance isn’t something we usually think about before it’s too late. You might think that disability isn’t a major risk, but one-third of us will be disabled for at least 90 days at some point in our career. Without disability insurance, you won’t be able to replace that lost income.
You should be able to find disability insurance that covers around 50 to 70 percent of your current income depending on your financial needs. With both disability and life insurance protection, you won’t have to worry about any unexpected circumstances threatening you or your family’s financial future.
We hope that you’ll never need any of the tips on this list, but it’s much better to be safe than sorry when it comes to your financial security. These ideas will help you prepare for whatever happens and make sure you have the money you need to get through any financial challenges.
Disclosure: This post was made in paid partnership with Bestow. Neither Bestow nor North American Company for Life and Health Insurance were involved in the preparation of the information in this article. The opinions and ideas expressed in the article are those of the author(s) and are not promoted or endorsed by Bestow or North American. You should always seek professional advice before making a financial decision. Money Done Right will not be compensated for life insurance purchases but may receive affiliate fees.
Logan is a practicing CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.