One of your goals for this year could be to find ways how you can protect your finances from unforeseen incidents such as the health crisis that gripped the whole world. No one was prepared for the challenges that came with it. Most especially, how it rippled into the economy and affected people’s personal finance.
When the pandemic hit, a lot of people realized the importance of planning for the future. This was because when their income was suddenly affected, they needed a cushion fund. It brought to light how crucial an emergency fund is. This also gave people the chance to understand how their debt situation affected their ability to stretch limited funds over a period of time.
These are just some of the instances why you could be looking to protect your finances. You need to make sure that whatever life throws at you in the future, your finances will hold. This is crucial especially when you already have a family of your own. You need to make sure that your loved ones will have unimpeded access to all their basic needs.
It is quite difficult to be let go from work and you do not have any form of savings. Pew Research shares that unemployment peaked in April 2020 at 14.8%. Suddenly, buying food for your children becomes a stressful activity for you. You begin to count the ways to cut down your expenses so you can pay for utilities at the end of the month. If you are serious about finding ways to secure your finances for the future, here are a few things to keep in mind.
Save up for it
If you want to protect your finances and make sure you can weather emergency situations in the future, you need to save up for it. One strategy you can use is to focus on the habit at first. This is the reason why a lot of people are not able to save. They are always waiting for the right time when their income is a little bit higher. The problem is that they never really developed the habit of saving that is why regardless of how much their income is, it may never be enough.
Creating a habit can start with a small amount of savings. Remember, you are trying to get used to saving money and it is a lot easier to do that when you start with a relatively small amount. As you continuously set money aside, you will slowly get used to it. Soon, you will be doing it automatically. Once it becomes a habit, it will now come naturally.
You can bump up the amount you save as you go along. Increase the amount you save over time and not your lifestyle. It can help to enroll the account where you save in an auto-debit program. This way, the money is already out of your hands even before you get the chance to use use it mindlessly. It is safely tucked away for future use.
If you want to protect your finances in the future, you also need to take a close and hard look at your debt payments. These can suck away any savings you have especially if you do not manage them well. This is because lenders can start increasing the amount you have to pay when you miss a payment due date. They could begin to add interest, fees, and other charges and penalties to your account.
But you also have to remember that debt is not at all a bad idea. In fact, a lot of big-ticket items you might prioritize in life could involve the fact that you have to take out a loan. If you want a house, a mortgage loan can help. The same thing goes for a car, a business, and even for college and post-graduate studies. For each of these, there is a loan that can help you get started with them.
The problem is not the debt itself but how you pay for it. First off, you need to make sure that you only take on debt that your budget can cover. Then have a repayment strategy for how you will pay off your debt. Do you pay off high-interest accounts first to save money in the future or pay off accounts with small balances. This is totally up to you but be sure you pay them off as fast as you can.
Take advantage of free money
In trying to protect your finances, you might lose track of free money along the way. Yes, there are a few of these around if you know where to look. For starters, your employer could be giving your free money in terms of an employee-matching program for your 401k fund. What this means is that they could be putting in extra money in your 401k depending on how much you put in. This is the reason why some people choose to max out their contribution to get the maximum match their company will put in. But even then, CNBC shares that about a quarter of Americans are not taking advantage of this 402k match program.
You can also start looking into passive income and see how that can add to your monthly earnings. As the name suggests, it is the income you earn without putting a lot of time into it. This can come from a number of sources such as investing in stocks or even in a rental property. Just keep in mind that minimal work does not mean you do nothing to make it grow.
And much like every other investment tool, you need to monitor them from time to time. This allows you to pivot around and make the necessary changes as you go along. To make the most out of the income you generate from these sources, have a plan for the money. It can go towards savings or debt payment. The important thing is to have a plan for how to use it because you could end up spending it on frivolous expenses.
Stay on track with your house payments
You might be wondering what your house payments have to do in trying to protect your finances. The main reason is that when push comes to shove, you have the option of borrowing money from your home equity. Though this should not always be your first option, it can be an alternative to borrowing from high-interest lenders.
One thing you have to remember is the fact the whenever you borrow money from your equity, you increase your repayment period on your property. As a result, your lender would have a longer hold on your house. If anything happens in the future and you cannot pay for your house, they have the option of taking it back.
Whenever you borrow from your home’s equity, never take more than what you really need. It also helps if you can make extra payments on the house. It can be advanced monthly payments to lower down the chances of sending late payments. It can also be a direct principal payment. This can help you save interest money down the line.
Expand your skillset
If you want to protect your finances in the future, you need to continue upgrading or learning new skills. The reason for this is that it gives you the flexibility in terms of work you can take on in the future. It also opens up your options in terms of work you can do in the future. This might even give you more options when it comes to retirement activities when the time comes.
You need to protect your finances in the event of another crisis in the future and it starts with believing in yourself. Know that you can accomplish what you set your sights on and work on it until it becomes a reality.