Over the past few episodes, we have been working through the 5 foundations of financial fitness. Today, we’ll delve into the fourth foundation. The fourth foundation of financial fitness is to protect what you can’t afford to lose.
Since life is full of ups and downs, it is important to plan ahead to be ready in case things don’t go your way. Listen in to hear the 6 things that you should consider protecting.
You will want to hear this episode if you are interested in…
- Examples of things that you should consider protecting [1:42]
- Property insurance will help you protect your stuff [4:24]
- Protecting your income with disability insurance [5:32]
- Homework [9:30]
6 things worth protecting
- Yourself – A healthy cash reserve protects your ability to make good decisions and stay out of crisis mode. My guideline for building cash reserves is to have 3-6 months of fixed expenses on hand. It’s up to you to decide what that number is. Examine your optional and fixed expenses to come up with the best number for your situation. You may also want to stock up your food pantry. Building up 14 days’ worth of resources will ensure that you can weather any temporary supply chain issues.
- Your stuff – Property and casualty insurance is the most common way to protect your home, automobile, and belongings. Talk with your insurance agent yearly to make sure that your belongings are sufficiently protected. If you have your cash reserves in place, consider increasing your deductible level to spend less on insurance premiums each month.
- Your health – Everyone should have medical insurance regardless of their situation. As you build your cash reserves, keep your deductibles and out-of-pocket maximums in mind. I encourage you to consider using a high-deductible plan with a health savings account (HSA). Listen in to hear why I think that the HSA is one of the best accounts out there.
- Your income – You can protect your income with long-term disability insurance. Your ability to earn an income is usually your biggest asset early in your career and is still significant up until retirement. Most employers provide an option for some level of coverage. If you get sick and can’t work for a month, that is what cash reserves are for. Long-term disability insurance covers the devastating effects of a long-term disability.
- Your heirs – Protect your heirs with life insurance. If others depend on you, assess your situation to see if your survivors will need the coverage. If you have enough resources so that your heirs would be comfortable, then you may not need life insurance. If you aren’t sure how much life insurance you need start with 10 times your annual income. Listen in to discover what you need to have in place to develop an estate plan.
- Your portfolio – Long-term care is one of the largest risks that you will face in your lifetime, and as such, the premiums are quite high. Consult a financial advisor to discuss your options regarding self-insuring and long-term care insurance.
Since it is impossible to do 6 things at once, for your homework, choose one of these areas to see if you are on the right path. If not, come up with a plan to fix it.
Resources & People Mentioned
- Episode 8 – The 5 Foundations of Financial Fitness
Connect With Justin Waller
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Audio Production and Show Notes by – PODCAST FAST TRACK