If there’s anything the last year has shown us, it’s the importance of a financial safety net. The COVID-19 pandemic is wreaking havoc on the personal finances of many Americans. And although nothing outweighs the loss of life, devastating financial circumstances create hardships all their own. While 2020 and 2021 are unique in terms of the pandemic’s global impact, the truth is financial emergencies affect many individuals at some point or another. Having a financial safety net in place is critical to weathering the storm whenever it occurs.
Here are three foundational elements to a financial safety net, which can help buffer the impact of hardships such as a job loss, health crisis and property loss or damage.
1. Establish an emergency fund.
It’s important to have sufficient funds set aside in a safe, highly liquid savings vehicle, such as an FDIC-insured savings account (higher-yield options are often available online) or short-term certificate of deposit (CD) to cover expenses in the event of an emergency. Shoot for a minimum of 3-to-6 months’ worth to start. Some advisers suggest trying to grow this to a year’s worth of expenses over time. This may seem like a daunting task, but don’t let this dissuade you from starting. Cutting back on nonessential spending, picking up a side hustle or even selling items can help jumpstart your emergency fund efforts.
2. Obtain adequate insurance protection.
Don’t wait for an emergency to strike before becoming familiar with the details of your insurance. There are a number of policies available to help protect your finances in an emergency. Most people have homeowners and auto insurance, but many do not fully understand their coverage. This is why it’s important to review all your policies with a knowledgeable agent to ensure you have adequate protection.
You should also consider life insurance to protect against the loss of a primary breadwinner’s income, disability insurance if sufficient coverage is unavailable through your employer, long-term-care insurance to offset the cost of care as you age and an umbrella policy for additional protections. Speak to your local We Insure agent for a complimentary review of your current policies, no matter who the provider is. Your agent will be happy to give you a free, competitive quote to make sure you get the right coverage at the best price.
3. Plan ahead for retirement.
The timing of a financial hardship can be a significant factor in terms of its impact on your personal finances. When a setback occurs close to retirement, especially when retirement savings are not where they should be, this can force you to continue working longer than planned. The closer you are to retirement, the more important it is to have a safety net in place because you’ll have fewer working years left to recoup lost wages or rebuild depleted savings. Work with a qualified financial advisor to make sure you’re contributing regularly and sufficiently toward your retirement. That way, you’ll be in a better position to weather any hardships — no matter when they come.
If you don’t already have a safety net in place, don’t panic. Start saving what you can afford to each month. Fortunately, not every financial challenge is a major one, and even small amounts set aside can help you pay an unexpected repair bill without adding to credit card debt. And it costs nothing to have your insurance reviewed by a We Insure agent. In fact, you may end up saving money — and being better prepared for whatever the future holds.