Marc A. Hebert's Money Sense: Preparing finances for the next rainy dayBy MARC A. HEBERT
December 15. 2017 9:44PM
Rainy days can take many forms - the unexpected car repair or a job loss are examples. While we usually can't avoid a financial surprise, there are some ways to prepare in advance.
Seek expert advice. A fresh financial start should begin with some comprehensive, up-to-date advice. Consider discussing your current finances with your tax and financial adviser. If you don't have either of these, then consider searching for professional resources online or at your local bookstore. There are many books on personal finance that might help provide insight into your situation. Many people believe they have made mistakes with their money that they will never be able to repair. The only way to confirm whether this is true is to seek professional advice and properly assess what you have done in the past and should do in the future.
Make a budget. Start by figuring out how much money you have coming in and going out. Find out just what you are spending your money on. Periodically review your bills. Where are you wasting money? Are you paying $40 for a landline phone that you never use? Do you let the air conditioner run when you're not home? Do you waste money on late fees because you don't get your bills paid on time? Get rid of the waste and save the extra.
Pay down your debt. Resolve to get a better handle on existing debt, and, above all things, resolve to pay it off in a sensible fashion. This often involves attacking the highest-rate and least tax-advantaged balances first. If debt management is a concern, consider meeting with a counselor to help address the problem.
Re-evaluate your career plan. It is true that many Americans will have to work longer than they initially planned to ensure a healthy retirement. On the positive side, making this assessment will help the situation going forward. You should also consider whether your current career meets your personal and financial needs. An opportunity to earn extra money often seems appealing, but if you are unhappy doing your current job or you see your industry going nowhere, then it might be time to re-train or research a change.
Get serious about an emergency fund. For most people, an emergency fund needs to hold three to six months' worth of cash at a minimum. This fund should be kept in an easily accessible place, not as accessible as a mattress, but not in a stock fund or other investment that might fluctuate in value. You need to treat the cash as money that isn't there unless a disaster occurs. One way to build such a fund is to save your change. Such a strategy doesn't sound like much, but it can accumulate considerable value over the long term. Another route to accomplish this goal is to save your raises. The difference in your paycheck is the perfect way to start your emergency fund. One additional strategy to consider is to save your car payment dollars once your car loan is paid off.
Insure properly.Insurance exists to prevent financial devastation. Tips from your agent or financial planner can help you consider how much auto, home, umbrella, life, disability and health insurance you have and need. Make certain to consider insurance for events such as floods and earthquakes that occur infrequently but are not out of the realm of impossibility.
Create a worst-possible scenario. It is not the easiest thing in the world to do, but based on your personal circumstances, imagine what would be the biggest potential risks that you might face financially. Be honest with yourself. Answering these questions can put you on the road to preparing for them.
Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at email@example.com. Your question and his response might appear in a future column.