You’ve got a great job, opportunities for career growth, a good salary – you feel confident in your ability to provide for your family. One important thing to keep in mind, however, is that the wheel keeps turning. There will be ups and downs, and it’s a very good idea to plan and prepare for those changes ahead of time.
Below you’ll find several key points to help you make sure you’ve protected your family financially.
Prioritize debt reduction
And pay it off completely, if you can. Yes, sometimes it’s better to lease stuff or charge it on your credit card instead of spending cash upfront, but watch out for the cumulative amount of debt at any given moment and for those large chunks (such as a mortgage, car lease, etc.).
Through a smart estimate of your expected earnings for the near future, you can easily figure what you can lease or charge on your credit card. There are a number of suggested approaches to this – and many of them might be useful to you – but a general rule of thumb is to aim to pay off any credit card debt within 36 months. If your financial situation deteriorates and you find it harder to make those monthly payments, it might be a good idea to explore taking your debt to another bank or institution with a better interest rate.
Insurance
It’s always a good idea to insure your assets, whether it’s your car, house, baseball card collection, whatever. You never know what might happen, and the premiums on your insurance policy are usually very acceptable compared to the risk of losing your assets.
Another asset you might not immediately categorize as such is – your own life. Life insurance is a useful financial instrument that gives you and your loved ones peace of mind. This holds particularly true for households where one of the partners is the sole or primary earner. It’s not an easy topic to consider or talk about with your partner, but it’s always better to be prepared in a way that ensures a protected future for your loved ones.
Save for your kids’ education
This also doesn’t ring a bell for most people initially, but it’s one of the most important investments in your family’s future. I’m not referring only to traditional education (why not go to MIT if you can afford it, right?), but also to newer methods involving modular education, fast-paced and well-packed professional classes, etc. Having the right tools at their disposal puts your children in a far better position.
Another aspect of saving for the education of your children is that they’ll need a (significantly) smaller student loan or won’t need one at all. This alone makes it worth it.
Plan your estate
Estate planning involves specifying what happens to your assets should something happen to you. Having your affairs in order not only avoids a lot of problems for your loved ones during a very traumatic and difficult time, but it also protects them financially. It’s not worth going into more detail on estate planning now as we’ve written a great dedicated article on the topic.
Diversify
We all know the saying about not putting all your eggs in one basket. In simple terms: don’t tie up your resources in one asset (or one type of asset). Traditionally, people invest in stocks, real estate, and gold; in the last decade, cryptocurrencies and NFTs also gained in popularity as investment instruments. There’s no golden rule about how many types of assets you should diversify into, but the general rule of thumb is to invest in something you understand. A clear example is if you don’t know what blockchain is and what possibilities it provides, if “altcoin” sounds like a foreign language, it’s not a good idea to attempt investing in cryptocurrencies until you have educated yourself.
In short, if all your cash is in a savings account, by creating a stock investment portfolio, for instance (managed by a reputable company), you effectively cut the chance of an absolute disaster (wiping out all your savings) in half. Add a third instrument into the mix – such as investing in real estate – and the protection gets stronger.
Be smart with your finances
I know, this sounds way too cryptic (or generic), but bear with me. I’m not implying anything fancy, but rather a few generally applicable things, such as:
- living within your means
- creating a monthly budget and sticking to it
- having an emergency fund, and
- simplifying your lifestyle.
I’m not suggesting living a painfully frugal life, saving on everything, and missing out on… well, life itself. Rather a more “grown-up” approach to expenses. That is, identifying the key things you need to spend money on and being smart with your expenses. Consistently taking smaller, but smart financial decisions goes a long way.
Sharpen the saw
One of the most important things to keep in mind is that life is not static, it’s dynamic. That means accepting the fact you need to constantly learn new things and improve your financial knowledge. No one piece of knowledge can sustain a lifetime of financial decision-making, and the more you learn, the more prepared you are to face whatever difficulties come.
This, of course, includes your family members. Whether it’s sharing what you’ve learned with your partner or playing fun and educational games with your children, it’s all worth it. It’s a direct investment in your family’s future and well-being.
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