How to Create a Backup Plan For Your Personal Finances

If COVID-19 has taught us one thing, it’s that an earth-shattering event like a pandemic can happen at any time, and it could even cause you to lose your main income. Even if not, it could affect your financial future, such as setting back your retirement plans or hurting your investments in other ways. The good news is you can always create a backup plan if future disasters or common life events disrupt your original goal.

 

Build A Sizable Reserve Fund

 

You should use a savings account or a short-term CD account to save up money for a worst-case scenario like a job loss. You’ll want to make sure it can cover your rent or mortgage payment over the course of six months to a year. It takes some discipline and focus to set aside funds in savings, but even a little bit set aside here and there can add up to a lot of savings.

 

Choose The Right Life Insurance Policy

 

Life insurance is also something you should have as a protective measure against the unforeseen. Not only is it used for covering the needs of beneficiaries if the policyholder passes away, but it can also be used to cover other financial setbacks. With a cash-value life insurance policy, you can take cash distributions depending on how much you’ve paid into it so far. But you will deplete your death benefit amount if you aren’t careful about how much you cash out.

 

Know When To Change Your Investment Portfolio Strategy

 

Sometimes you need to change the kind of investment funds you have in your portfolio when markets go through major changes. It may be better to invest in bonds over stocks if the stock market is struggling, or if bonds are more stable and offer more consistent returns. There are even other assets you can invest in for retirement, including real estate and precious metals. It’s good to have a knowledgeable advisor working with you letting you know when you should buy or sell your assets to match the market conditions.

 

The bottom line is financial setbacks are always a possibility because of circumstances you can’t control. However, you can always be ready to reallocate your savings, investments, and insurance policies into new savings opportunities when your original ones don’t work anymore. 

This post was originally published on Etienne Kiss-Borlase’s Finance Blog. For more info about Etienne, please visit his homepage.

How to Create a Backup Plan For Your Personal Finances

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