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It may seem overwhelming to create a financial plan, but if you take the time now to prepare yourself, you will be able to enjoy more of what you love to do in the future. As you start to transition into your next career phase or retirement, you will probably want to minimize your financial risks.
But even when you do your best to save responsibly and get your financial ducks in a row, life can throw curve balls. The good news is that a sound financial plan can help you deal with whatever roadblocks you hit. Here's a checklist:
- Start with an emergency fund.
Worried about what might happen if you lose your job or your spouse has a health crisis? Take a look at your emergency savings and make sure you have enough cash saved to cover about six months' worth of living expenses.1 To build this fund, consider setting up a monthly automatic transfer from your checking to a liquid savings account. Start with a small amount, like $50 per month, and build your fund over time. You can always increase that number if you feel comfortable putting away more. - Create your worst-case scenario budget.
If you had to pare back to only the essentials, what would make the cut? Developing a bare-bones budget requires you to align your "necessary" expenses with your values.
For most people, expenses like rent or mortgage payments, utility bills, credit card or other debt and insurance premiums are mandatory. Discretionary expenses that might need to be cut—or pared back—include dining out, shopping for new clothes and buying the latest tech gadgets.3 - Make sure you're covered.
You will want to review your insurance coverage and determine whether it aligns with your financial plan, especially if you have an emergency. Health insurance will be important as you move into retirement.2 And if you choose to sell your home and downsize your space and your responsibilities, you will need renter's insurance.4 - Consider estate planning.
Your financial plan should include an estate plan, which can help lessen taxes, shield your beneficiaries and avoid the cost and hassle of probate. Everyone needs legal documents that communicate their wants and needs, especially when they no longer can.5 - Document your important accounts.
One of the easiest ways your financial plan can prepare you for the worst is by ensuring it lists your accounts and provides instructions for accessing your financial information—this is especially critical in the digital age.6
1 Trent Hamm, "A Step-By-Step Guide to Building a Big, Healthy Emergency Fund, " The Simple Dollar, October 2017. https://www.thesimpledollar.com/a-step-by-step-guide-to-building-a-big-healthy-emergency-fund/
2 Mark Hendricks, "Health care is an even bigger part of retirement planning," CNBC, October 2017. https://www.cnbc.com/2017/10/06/health-care-is-an-even-bigger-part-of-retirement-planning.html
3 James Clear, "Core Values," JamesClear.com. https://jamesclear.com/core-values
4 Maryalene LaPonsie, "Do You Need Renters Insurance?" US News, June 2017. https://money.usnews.com/money/personal-finance/family-finance/articles/2017-06-22/do-you-need-renters-insurance
5 Julie Garber, "Top 5 Reasons Why You Need an Estate Plan," The Balance, May 2018. https://www.thebalance.com/top-reasons-why-you-need-an-estate-plan-3505444
6 Ruth Sarreal, "Can My Spouse Access My Savings Account Without Permission?" GOBankingRates, October 2017. https://www.gobankingrates.com/banking/can-spouse-access-savings-account-permission/
This article is provided for general informational purpose only and should not be construed as advice or solicitation of any specific products or services. Please consult qualified tax, legal and financial professional before taking any action.