Is it possible to eliminate financial risk? Yes and no. There are some things that are unavoidable. Sad part about life is one day it all has to end. But you're moving on shouldn't mean that those you leave behind shouldn't be left with nothing.
Eliminating risk involves taking care of yourself and those that you care deeply about while you're alive, as well as when you're not here anymore.
I know a story of a young lady who was attending college. She was on financial aid. Her mom suddenly passed away. When checking her mom's account she only had $180 left in it. This young lady didn't know what to do. It was just her and her mom. Imagine the burden that fell upon her. That could have easily been eliminated if only her mother had set up a life insurance policy for as low as $20 a month. Or had some sort of investment account in case of an emergency.
Fortunately, a very kind Banker reached out to his fellow Bankers to see if they would like to chip in and help out. And in one day they were able to get nearly $7,000 to help her out. This young lady was able to get help by the good will of the people around her, but this isn't the case for all. In this blog, I'm going to go through the Top 7 Financial Risk Eliminators to make sure you and those you care about are protected.
1) Set Up a Will
You could eliminate the risk of the family burden of your passing away. Funerals and dealing with the property of a deceased loved one can be very time consuming and expensive. One good way to do that is to have a WILL set up. Do you have a WILL? If you go online then you'll find several different law firms that will help you to make your WILL. I suggest calling at least three of them to get different ideas as well as quotes. Why cause greater anxiety on those you love?
2) Get Life Insurance
If you don't already have life insurance then I highly recommend you get it. This is one risk eliminator everyone, I repeat everyone should have. For a small monthly fee you could leave your family with several million dollars. Of course, your monthly payment will depend on your age and health status. You'll need to get checked before you can get approved for life insurance. There are many websites that will compare different insurance rates for you. You can choose different terms as well as some life insurance policies that are attached to investments called variable annuities.
I recommend getting a life insurance package worth 10x yours and your spouses annual salary.
3) Save Up For Your Emergency Fund
The rule of thumb is save an emergency fund worth at least 3 to 6 month worth of your month expenses. See my article on saving and budgeting.
Make sure you have it set up in a separate account, preferably at a different bank. If your checking or savings account is linked to your emergency fund, it will be too tempting to transfer the funds over with the click of a button. Don't do it!
Another thing to keep in mind is to make sure your emergency fund is liquid. Meaning make sure your emergency fund isn't tied up with investments. The reason why is because you want your money to be accessible in the event of an emergency. If your money is investments such as stocks, bonds, mutual funds, REIT's, etc... it can take weeks before you get your money. Your emergency fund is not an investment. I repeat, your emergency fund is not an investment. Remember that.
4) Retirement Account
Another way to eliminate risk is to make sure your retirement is set up properly. See my blog on the Rule of 72.
If possible, you want to maximize all of your retirement benefits. Retirement is coming faster than you think. Before you know it you're a year away from retirement wondering 'How in the world am I going to be able to do this?' Some people only want to put in the minimum because they want more money now. Consider the words of Jeff Bezos, "Think long-term."
Some say they can't afford it. Watch, those same people have a membership at a golf course, membership at other associations that often require large annual fees, expensive gym memberships with a personal trainer, subscriptions to multiple entertainment resources that they often don't use and more. In fact, what some people spend just for their cable bill alone they could be paying towards a very nice life insurance policy. If you aren't sure where to start, begin by putting away just 3% of your income towards your retirement account. Then every 6 month, increase your contribution by 1% until you are at 15%.
5) Get a Warranty For Your Car
I believe it's safe to say that all new cars come with a warranty as well as the available option to extend your warranty. If you know that you're going to be keeping your car for longer than the given warranty then I highly recommend buying the extended warranty that day. A warranty is much like life insurance. If you wait longer to add it on, it can become more expensive.
Your vehicle's warranty will be offered in several different packages. But the basics go as such:
Most cars nowadays include a lot of electronic devices such as navigation and GPS systems. Make sure your warranty covers those items as well as they are typically the first to go out. Anyone who buys a used car should always buy one with a warranty. If you're going to buy used, then I would highly recommend buying a certified pre-owned. These are a little bit different than your typical used car warranty as it is treated like a new car. Not every used car is qualified to become a certified pre-owned because the standards are extremely high and the manufacturer has to approve the warranty. Keep in mind you can negotiate a lower cost for your warranty. Just a little secret they won't tell you.
7) Homeowners Insurance
What about the items in your home? Is it insured? Keep in mind that the chances of something happening to your home, especially if you plan on living in it for more than 10 years is very high so you need to get yourself homeowners insurance.
Oftentimes you can get a better deal if you combine your homeowners insurance, renters insurance, auto insurance, Etc. Ask your insurance provider for more info. Remember to always speak to at least three different sources and then make your best choice. Just imagine every single thing that you own in life is completely insured and protected. Imagine the alleviation of stress! Bad things are going to happen in life but at least when they do, you already have a strategy in place.
So this begs the question, are you prepared for whatever today or tomorrow might bring? Are you fully protected? I could go on and on about the different ways to protect yourself. But the main things that you want protected are the things that you depend on while you're alive as well as protecting those that depend on you once you're gone. Your home, your car, your money, investments, your retirement, life insurance and a will. If you have at least these items protected then you're off to a good start.
Remember, thanks to technology you can find a really good price online for each of these things. None of these will cost you a premium. I don't typically make specific recommendations because frankly just about everything is negotiable. But maybe in a later blog I'll build a list of my preferred sources for different insurance and protection services.
So get protected and eliminate financial risk. If there's one thing I know for sure, it's many people out there would do whatever it takes to ensure that you and those that you care about are protected. And you can't put a price on that.
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