NEW YORK, December 6, 2021 (Newswire.com) - People at all income levels can fall into the trap of living paycheck to paycheck if they don't proactively plan towards long-term financial goals. That's why it's important to get a stable financial footing by creating a solid foundation. And here are three simple ways to start building that financial security.
1. Start a Small Emergency Fund
Change comes from taking tiny steps in the right direction. And one of the most basic places to start is establishing an emergency fund. An emergency fund is a cash reserve kept separate from daily checking and savings accounts that serves as a buffer to pay for unanticipated expenses that may crop up.
From a flat tire to a broken cell phone, life can throw any emergency into the mix that requires quick cash payment. Having a small emergency fund of a few hundred dollars can help ensure someone doesn't need to take on debt to cover the cost. Plus, having a cash cushion means savings in interest compared to putting an emergency expense on a credit card or taking out a loan. Ideally, one eventually builds a fund that can cover about six months' worth of expenses, so one can still pay their bills if there is an unexpected job loss or illness.
2. Automate Your Savings
People frequently wait until the end of the month to send money into a savings or retirement account. It's easy to miss out on savings when one has to make an effort to set money aside. It's often possible to have a portion of a paycheck deposited directly into a savings account so that the work is done and one no longer has to think about it.
That goes for regular savings accounts set up for vacations or other short-term financial goals as well as retirement savings accounts. For those who have retirement plans available through employers, it makes sense to set up contributions that are removed from the paycheck before it's received. That way, it's out of sight, out of mind, and money is flowing into retirement accounts each month that will provide financial security down the line.
3. Get the Right Life Insurance in Place
Most people aren't willing to drive a car without auto insurance. But many people are walking around each day without adequate life insurance. Especially in instances where family members are relying on income or someone is holding a large debt, like a mortgage or business loan, a proper life insurance policy is even more critical.
Term life insurance is a contract with an insurance company that will pay out a death benefit if the insured passes away during the term, which is often 10 to 30 years. These policies tend to be affordable for the average person and are often less expensive for those who are young and healthy, making them a great way to invest in long term financial security.
The Bottom Line
Financial security comes from having appropriate guardrails in place that keep people on track toward financial goals. And the peace of mind that stems from becoming financially secure is unparalleled. That's why it's important to take small steps like saving an emergency fund, viewing savings as essential, and getting the right life insurance policy in place. Doing so can be the difference between living in a paycheck-to-paycheck existence forever and finally feeling the freedom of financial security.
Source: Northwestern Mutual