Do you have a financial safety net? If not, you’re not alone. A recent study by Bankrate.com found that only 38% of Americans have enough money saved to cover at least six months of expenses.
If you’re one of the 62% Americans who don’t have a financial safety net, don’t worry — it’s never too late to build one.
What is a Financial Safety Net and Why Do You Need One?
A financial safety net is a cushion of money saved up to cover your expenses in an emergency. Emergencies can include job loss, illness, or natural disaster.
It’s something worth thinking about and setting up. What will happen to you and your loved ones if you lose your job for a few months? What if you get into an accident that may prevent you from earning a living? Or what if some unexpected expenses come up. Do you have anything in place to make sure the bills continue to get paid and your family is taken care of?
If you don’t have a financial safety net, an emergency can throw your finances into chaos. You may have to sell your possessions, take out high-interest loans, or even go into debt to cover your expenses. This can be a very stressful and challenging situation to overcome.
How to Build a Financial Safety Net
Building a financial safety net is not a quick or easy process, but it’s definitely worth the effort.
To build a financial safety net, you first need to know how much money you need to save. Having three to six months’ worth of living expenses tucked away in an interest-bearing account is a good beginning.
Figure out what your family needs to comfortably live on if all income stops. Then start saving as much money as you can until you have built up this safety net.
If you cannot save that much money, start by saving a small amount each month and gradually increase your savings as your budget allows. You may also want to consider creating a budget so you can better track your expenses and find ways to cut back on costs.
Check Your Insurance
Life and disability insurance are another important part of your financial safety net, including your retirement money.
Do you have a plan in place to continue to cover your living expenses (or those of your family) when you can no longer work? If not, you should start saving for retirement as soon as possible. Call up your insurance agent and go over your current coverage. Make sure the insurance you’re paying for will pay out what you need and if not, make adjustments.
Consider Investing into Higher Interest-Bearing Accounts
Once you have a few months’ worths of living expenses saved up, you may want to start investing your money into higher interest-bearing accounts. While you may not be able to access any money invested here right away, it will come in handy when you’re dealing with a long-term financial emergency or are ready to retire.
The plus side is that plenty of investment vehicles out there will get you a much better return than your plain savings account at the bank. Talk to your financial adviser and develop a plan that’s right for you, your family, and whatever the future may hold.
How to Make Extra Money to Add to Your Savings
If you’re having a hard time saving money, there are a few things you can do to make extra money to add to your savings.
1. Sell some of your unnecessary possessions.
2. Take on a part-time job or start a side hustle.
3. Cut back on expenses and put the money you save into your savings account.
4. Invest in a high yield savings account or certificate of deposit.
5. Make a list of expenses you can live without and find ways to cut back on them.
Having a financial safety net is one of the best things you can do for yourself and your family. It gives you peace of mind knowing that you have a backup plan if something unexpected happens. So, take some time to build one up – it will be worth it in the long run!
The most important thing is to start saving money as soon as possible. The sooner you start, the more time you’ll have to build up your financial safety net.