How many stories have you heard about once-great athletes or pop music stars who made a ton of money … and then lost it all? It’s far too common, and if it can happen to them, it can happen to you.
What is Financial Insecurity?
Financial insecurity is a fact of life for many Americans. When many of us reach a point in our careers where we’re making decent money, the temptation is to increase our spending. This is fine — as long as we start saving first.
Did you know that less than half of the U.S. population has enough savings to cover three months’ worth of expenses? Maybe you’re finally at a point where you can comfortably cover your rent/mortgage, groceries and other bills. It’s a great feeling, and you should enjoy it — after all, you earned it — but there are no guarantees in life.
All it takes is one round of layoffs, one medical incident or another unforeseen misfortune, and your income can drastically go down. If that happens, you’ll be happy you built a financial safety net.
How To Create a Financial Safety Net
Here are four steps you can take to help achieve better financial security:
1. Audit Your Finances
Take some time to review how much you make and how much you spend. When you compile your tax return is a handy time for this task. Many people are surprised by how much they spend. Maybe you can discover some relatively easy ways to reduce your expenditures. If you just don’t make enough, it might be time to consider a job change.
2. Set a Savings Goal
Once you know how much money you earn and spend each month, you can figure out how much you can save. The right amount to save is different for everyone. It’s important to keep in mind what you’re saving for. Apart from saving enough money to cover a potential emergency or job loss, you probably always want to save for retirement and, if you have kids, for their futures.
You can talk with a financial planner about your options. The idea is to figure out an amount of money you need to save and a date by which you want to save it. Then it’s just a matter of working backwards to figure out how much you need to contribute monthly to reach that goal.
3. Be Consistent
The key to saving is consistency. Don’t just assume you can make up the difference by saving more next month because you want to buy a luxury item this month. Automating transfers to a savings account is a great way to stay consistent.
4. Choose an Account
Don’t just keep your savings in your checking account. It’s wise to have a savings account with high interest that you rarely touch. Put money in there and leave it until you absolutely need it. Investments can be a great savings option, too. Mutual funds have low risk, but remember, all investments have at least some risk.
Ready to Start Saving?
Want to learn the best way to build your own safety net, or help with any stage of your financial planning? Schedule an appointment with a Zions Wealth professional today.
