No one likes to think about all the bad things that can happen. However, not planning for those bad things can lead to financial hardship. In some cases, one tragic incident can bankrupt a family leaving their future uncertain. Thankfully, there are some precautionary measures you can take to help protect yourself from a variety of financial disasters and save money in the long run.
Liquid Emergency Fund
You may have heard that it’s a good idea to have an emergency fund. Typically, keeping about 3 to 6 months’ worth of living expenses in a savings account is a good goal to protect against job loss. That can take some time to accumulate, so any amount saved is better than nothing. In addition to money in the bank, you’ll also want to have cash on hand in the event that your bank isn’t accessible such as during a natural disaster.
There are several different aspects to auto insurance that can help protect you in the event of a vehicle accident. Liability coverage is the minimum you have to carry by law in most states. It pays for any damage that you cause to others in an accident and should include bodily injury and property damage liability. Comprehensive coverage pays for damage to your vehicle that is caused by an incident such as theft, flood or fire while collision pays for any vehicle you’re driving in the event of an accident. You can keep the cost of carrying this type of insurance lower by having a higher deductible. You may want to consider how much you have in your emergency fund as a guide to the level of deductible that you can tolerate.
Renters insurance is a great option for those who do not own their home, but would like to protect the value of their property from theft, fire, flood, or other natural disaster. In many cases it can also cover items not inside a residence, such as things stolen from a vehicle or jewelry that is lost or damaged elsewhere. Homeowners insurance specifically covers people who own a property and is usually required if there is a mortgage or other lien. Liability is the minimum and covers the homeowner in the event that someone is injured by you or on your property. It is important to know whether or not your policy pays actual cash value of items inside the home or whether it pays full replacement cost. Comprehensive coverage typically includes full replacement cost of property and contents if lost, stolen or destroyed.
You will also want to consider additional riders to cover certain types of valuable personal property. Examples of this might be laptops, jewelry, coin collections, or musical instruments. Be sure to keep an inventory with receipts and pictures if possible. Put this inventory in a safe place with your emergency cash and your insurance agent’s number so that you can start your claim as quickly as possible after an incident.
Keeping a home warranty isn’t just for new home buyers anymore. This can be a great option for any homeowner who’s at risk for major expenses in the event that things break or malfunction. A home warranty can also cover pest control and termite treatment which typically cost far more than the warranty premiums. Areas that are useful to cover with a warranty are appliances, heating and central air conditioning, electrical, plumbing stoppages and systems, and water heaters.
It can be difficult to wait for large purchases when there are so many sources of ready credit available. However the interest charged for things purchased with a credit card or line of credit can result in your paying nearly double for the things you want. Unless you are able to pay the entire balance of an item before interest kicks in, saving up in advance and paying cash is the money-saving way to go. Some retailers such as furniture and appliance stores even offer discounts for paying cash at the time of purchase.
Whether you’re emergency planning or just getting your finances in order, paying attention to these five areas of financial planning can save a lot of money – and headache – in the long run.