These 3 money tips from Freedom Debt Relief will ensure you’re not only covering the basics with your personal financial plan but also looking beyond and protecting yourself against unexpected events.
Flexible Emergency Fund
Emergency funds are great assets to have whether you are living paycheck to paycheck or already well established financially. When life happens, you can pay for it with your emergency fund, since that’s exactly what it’s for. This is far better than charging an emergency on a credit card.
Freedom Debt Relief notes that one of the main ideas behind an emergency fund is that it’s cash you have vs. cash you don’t have (i.e., credit cards). Emergency funds create discipline and are good financial practice.
How much should your emergency fund have? $1000 should be a minimum. This can cover a wide variety of unexpected expenses. From there, saving for 3 months of living expenses and eventually 6 months should be your goal.
Not everyone will be able to save that much and contribute to retirement at the same time. In that case, you can contribute to a Roth IRA as part of your 3 – 6 month emergency fund. If something happens, you can pull the principal out tax free. Any earnings will be taxed so its best to leave those in the Roth IRA until retirement.
Saving 15 Percent For Retirement
Saving 15 percent of your income for retirement is a great rule. According to the Federal Reserve Bank of St. Louis, the median U.S. household income was $59,039 in 2016.
Even if you are 30 years old and have no retirement savings, it isn’t too late to save for retirement. Using the above numbers, you’ll be able to withdraw $1824/mo starting at age 70, according to Vanguard’s retirement calculator. Obviously, time and contribution matter. If you can save 20% of your income, that brings the monthly retirement distribution up to $2432.
Freedom Debt Relief mentions that portfolio mix is also important. To figure what percentage of equity you should have, subtract your age from 110. In this example, the number is 80% (110-30). The remaining 20% will go into bonds.
Insurance You Didn’t Even Know You Needed
When is the last time you reviewed all of your insurance policies to be sure you have enough? For car insurance, make sure it covers medical expenses above and beyond for others that you are liable for. Medical expenses can quickly soar into the $100,000s, altering your life forever.
Does your home insurance policy cover the current value of your home? If you’ve made any updates to your home, check with your insurance company about re-evaluating the build value of your home. It may have changed and you’ll want to be sure it’s fully covered.
If you have a family with young children, does your life insurance policy cover them at least under graduation? Does it replace your income so your family doesn’t have to struggle in your absence? Freedom Debt Relief notes that you want your family to be protected in the event anything happens to you. The right amount of life insurance can do exactly that.
Freedom Debt Relief can help you get your debt under control. If you’d like a free evaluation from a credit counselor, contact them at freedomdebtrelief.com.