4 Financial Pillars

Most people plan their finances to account for the everyday – the expenses, financial obligations and pleasures. Far fewer people think about their future responsibilities, possible successes, and struggles. There future selves are a distant stranger.

These four financial pillars are essential to overcoming and enduring life’s unexpected, and many times unwelcomed, surprises. It is not the everyday that catches us off guard, but the sudden shifts and the slow creeping up of time that gets us.

An Emergency Fund:

Unless you can predict the future, then you need an emergency fund. Low interest rate credit, such as a mortgage, is no substitute to cash, ready when you need it with no strings attached. To thrive financially long-term, it is important to break away from the shackles of debt and be your own creditor. The people that win in a financial transaction are those that receive the interest payments, not give them.

A Retirement Savings:

Saving for retirement is probably notoriously forgotten because it seems so far away and there always seems to be more time to save for retirement. One thing is for certain, if we are still alive, then we are always getting older and there will come a time when we cannot or do not want to work. To be able to withdraw $5,000/month for 30 years you will need to have just over a million dollars in investments that are providing a 6% rate of return at 2% inflation.

Insurance:

Nobody ever sees the value of insurance premiums until they need to make a claim. We have all probably experienced it with our vehicles. The cost of getting a car rental and fixing the wrecked car can really add up. We appreciate it when the mechanic rings up the total and tells us that our insurance will be covering the bill.

The same is true for life insurance, except the benefit is not for us, but the one’s we leave behind. Term life insurance is more than adequate for most Americans and fairly inexpensive. The benefit far outweighs the costs and at the very least, it is worth considering. If you have dependents that rely on your income for their survival and/or you have debts, then having insurance is a must.

A Will:

A will is a directive of how you want your assets to be distributed when you die. Many people who opt not to create a will feel that they don’t have enough assets or wealth to justify drawing up a will. However, many times we underestimate the value of our assets because we forget to account for things like company pensions, life insurance policy through work, etc. Other benefits to having a will include: choosing who you would like to benefit from your estate (instead of having the state decide), protecting the interest of minor beneficiaries, nominating guardians for your minor beneficiaries, and choosing the executor or trustee of your choice.

Without a will, you are subject to the states procedure for distributing your wealth. This may not always be in your best interest. Protect yourself and your family by drawing up a will.

These 4 financial pillars create the structure that holds everything else together. Without these in place, even the best budget can crumble in a moment.

Source: Fortunate Investor

 

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