You’ve probably encountered an unexpected challenge at some point in your life. From a small mishap such as a fender bender to a big life-changing event, such as a medical diagnosis, these unexpected curveballs can take a toll on not just your physical and emotional well-being, but also your financial well-being.
There’s no way to predict when you’ll face a crisis in life but you can arm yourself with the right tools that can protect you and your loved ones when you face an unexpected challenge.
Make sure you have an emergency fund
Think of your emergency fund as a way to guarantee some peace of mind financially while you deal with the physical, emotional, or logistical aspects of an emergency. On top of giving you that peace of mind, an emergency fund allows you to undertake the unexpected costs of an emergency without reducing your monthly investment contributions or liquidating your investments. Thus it’s so important that your emergency fund is fully-stocked before you even start contributing to your investments.
Your emergency fund should cover at least 6 months of your living expenses to cushion you against any short-term challenges, whether its a car repair, or a temporary job loss.
Prepare for larger life risks with insurance
But there are larger life risks that are more than what your emergency fund can cover. Property damage, permanent disability, illnesses, or death can cost hundreds of thousands of dollars. Fortunately, you can protect yourself against these risks with insurance. Having insurance that appropriately protects your particular life circumstances allows you to keep other parts of your financial plan intact while also taking care of yourself and your loved ones.
Keep in mind, you should only pay for just enough insurance coverage given your life circumstances. For instance, if you’re a single working adult, you don’t need to purchase a high coverage life insurance compared to someone who’s married with children. If you own a home, make sure you have homeowners’ insurance; when you travel, make sure to get travel insurance. These relatively small premiums on the things you value are minor compared to what you’d be paying if your health, life or property were compromised.
Just as you would do with your investments, take the time to understand the type of insurance you should be buying, how much you should be paying for your premiums, and how much you should be covered for based on your life circumstances.
Plan for your loved ones’ future
Part of providing the best for our loved ones means having legal mechanisms in place to prepare you and your loved ones for the unlikely event that you’re faced with a terminal illness, or unexpected death. In addition to owning life insurance, also having a will can further reduce your loved ones’ legal and financial burdens during an emotionally trying time in their lives.
A will makes sure that your assets are distributed to your loved ones based on your wishes. With a will, you’re not only setting up your loved ones financially for after you’re gone, but you also reduce any potential familial disputes that could affect the well-being of your loved ones.
Remember, sound financial planning isn’t just about managing your money in the here and now but should also encompass a well-rounded legal strategy that prepares your loved ones for when you’re gone.
Create passive income streams
Once you’ve got the basics down (an emergency fund, insurance, and a will), you can take your preparation one step further by creating some passive income streams.
If you unexpectedly lose your main source of income, your passive income stream acts as a contingency plan; you’ll still have a regular income thanks to the passive income streams that you’ve set up. Investing in an income portfolio, or investing in real estate, or investing in a side-business are some ways you can diversify your income stream so that you’re not solely relying on your day job for your income.
Facing life’s challenges with preparation
The last thing you want to worry about while dealing with an unexpected life event is your financial well-being. So, it’s crucial to plan and prepare for the possibility that these events might happen to you by having the right financial and legal mechanisms in place. Your preparation will not only help you navigate a stressful time in your life with more ease, but it will also allow you to stay on track to achieve your long-term financial objectives.
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