We all want to protect our families. We put bandages on the kids when they’re hurt, make sure they’re dressed in lots of layers when it’s cold, and give them the right medicine when they’re sick.
But what about financial protection? It’s definitely an awkward topic, but necessary to consider how to financially protect your family. We drew up wills before our kids were born and have looked at estate planning and life insurance if something ever happens to us. We want to provide for our kids in the best way possible, which includes thinking about these sensitive topics now. Luckily my husband and I are on the same page and have planned a few things to financially protect our family.
1.Rainy Day and Emergency Funds
Expect the unexpected. Unfortunately, the only guarantees in life are death and taxes. Set up both a smaller rainy day fund and a larger emergency fund. A rainy day fund may be a small amount (perhaps $2,000) that covers larger than normal everyday expenses like school supplies, some medical bills, and home repairs. Meanwhile, an emergency fund covers you for larger life changes like a job loss or major medical problem. Plan to store funds that can cover about 6 months of expenses. Both funds should be in accessible, high yield savings accounts.
2. Plan Beyond Savings Accounts
My parents really instilled in me the importance of savings. After paying off any debts, I definitely put money towards saving up for the future. Some people use the expenses formula of 50% for needs, 30% for wants, and 20% for debt and retirement.
But savings alone won’t cut it. Make your money work for you to really prepare for the future. This includes investing your money in stocks, bonds, real estate or other forms of assets (this is a much more detailed section, but at least a start). If you have an investment goal, e.g. have $1 million in 25 years, use an investment calculator to determine how much you need to save to reach that goal.
3.Determine the type of life insurance you want
There are many different types of life insurance. Coverage can range from a slower, guaranteed payout to longer term investments (this was a good guide).
Here are the different types of life insurance:
– Term life insurance – fixed term (e.g. 20 years, 30 years, etc.). This is the least expensive form of life insurance, but is only available during that period.
– Whole life insurance – insurance that is similar to an investment as the cash value of the payout will increase over time enabling the policy holder to receive more money than he pays for his premiums
– Universal life insurance – similar to a savings account which earns at least 2% interest per year and becomes more expensive over time
– Variable universal life insurance – like universal life insurance, but with funds invested in mutual funds leaving a variable level of returns
This is just a small primer for how to financially protect your family. It has helped us save enough for college and brave job losses as well as other life changes. Life is unpredictable. Help your family survive its ups and downs financially.
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