On the fourth day of the “Eight Days of Income Protection” we bring you four steps to ensure financial security and income protection, three ways to get budget friendly long-term disability insurance, two tips for teaching kids about money, and one coverage we all need.
It’s important to be smart about your money and on top of your finances to make sure you prioritize financial security and income protection. Today, we offer steps you can take to do just that.
Know What You Own and What You Owe
First, begin by taking an inventory of your assets (what you own) and your liabilities (what you owe).
Examples of assets include:
- Real estate
- Any other personal valuables (jewelry, antiques)
Your liabilities consist of debt such as:
- Student loans
- Credit card bills
- Automotive loans
Make the Most of Your Investments
Once you have a list of your current investments, take the time to understand it.
Ask yourself whether you’ve invested in the right savings vehicles for your financial goals?
Are you maximizing all your contribution limits in retirement savings accounts such as a 401k plan?
Are you eligible to make any conversions? For example, if you made less income this year, you could convert money from a traditional IRA to a Roth IRA before the end of the year. Making the conversion means you’ll pay less in taxes during a year when your income is less, and therefore your tax rate, is lower than usual.
Do you have an emergency savings fund? If so, do you have too much or little in that account. Does it make sense to move some funds to a higher yielding savings account or alternatively should you be contributing more to this fund for a rainy day.
Work with a knowledgeable financial advisor who can help answer these questions as well as develop a customized financial strategy to make sure you’re optimizing all your investments.
Manage Your Debt
Once you’ve made a list of all your liabilities, ask yourself if you need to better manage your debt.
Are you making all your debt payments such as credit card bills, student loans, and mortgage on time?
Are you only paying the minimum balance on your credit card bill or are you paying it off in its entirety each month? Credit card debt is the best candidate for priority repayment. Generally, credit cards have higher interest rates compared to other debt therefore, it’s important to make repayment of this type of liability a priority.
Student loan debt is a huge problem in this country. There are a total of $1.19 trillion in outstanding education loans. Only half this amount is actually in repayment at this time. The rest is deferred because the borrowers are still in school. If you have student loans and find it difficult to manage your monthly payments consider your options for repayment.
If you have federal student loans you may be eligible for Public Service Loan Forgiveness or Income-Based Repayment Plan. If you have private student loans you can explore consolidating or refinancing your student loans. These options could help lower your monthly payments because you might be able to qualify for a lower interest rate or you may be able to lengthen your loan term.
Look at the interest rates on your mortgage payments. If the current interest rates are trending lower than your mortgage rate, consider refinancing your mortgage. When refinancing, you take out a new, lower-interest loan to pay off the old one. Shop around for the best rate by calling a few mortgage brokers to see who has the lowest interest rate available to you.
Income Protection Means Having the Right Coverage
Income protection means having the right coverage when something goes wrong. The unexpected such as an accident or injury can happen to any one of us, and when it does expenses can add up very fast. Paying for all these costs out of pocket can quickly dwindle your life’s savings. You’ve work hard to build a solid financial future for yourself and your family, so you want to make sure you have income protection.
When we think of income protection, we usually think of disability insurance coverage.
Disability insurance coverage is essential for income protection but a disability insurance policy will typically not replace all of your income. Your insurer will want to maintain a financial incentive for you to return to work. Policies typically range from 40 percent to 65 percent of your pre-disability earnings at the time of purchase. If you earn commissions and bonuses, these are normally not included.
Besides disability insurance, there are other types of insurance coverage that can protect you financially. The right coverage can protect your life and keep a roof over your head.
Common types of coverage include:
- Life insurance: This coverage provides financial support for your family after your death.
- Health insurance: Medical bills can add up quickly if you or your loved one become ill. The right health insurance coverage can ensure you and your family will be financially protected.
- Homeowners Policy: If you own a home, this coverage protects one of the biggest investments you’ll probably make in your lifetime, your home.
- Automotive Insurance: You’ll need one if you own a vehicle. This coverage can give you peace of mind because you’ll be protected financially if you get in a car accident.
Shop around and talk to a knowledgeable insurance agent to figure out what types of coverage you need.
Carefully exploring the above mentioned steps and taking action with the help of experts like a good financial advisor and insurance agent can help ensure income protection for you and your family.