3 By wisdom a house is built, And by understanding it is established; 4 And by knowledge the rooms are filled with all precious and pleasant riches. Proverbs 24:3-4 (NASB)
Last week I began a short mini-series on what happens after you get out of consumer debt. I wanted to discuss where you need to apply all that energy and focused intensity you used to get out of debt.
If you recall, I equated a financial wellness, as a journey in three stages that are analogous to the building of a home: laying down a firm foundation, building up your financial household, and letting the trees grow.
Today I want to cover stage 2: building up your financial household. After you get out of debt your next step, to strengthen your financial position. You want to focus on increasing your savingsand managing the risks to your finances.
Savings fall in three major categories: emergencies, large purchases, and wealth building. Just like when you are building a home, some rooms will have higher priority than others. In the list below, I would personally pay initial attention to items 1 & 2.
Increase your initial emergency fund ($1,000) so you can cover 3-6 months of your monthly expenses.
If you don’t own a home, this might be a good time to start saving for a down payment that will cover20% of the purchase price. If you own a home maybe it’s time to save for that renovation project you have been putting off for a while. Or you could start paying extra on the mortgage principal so you can retire that mortgage earlier.
Is it time to replace one of your vehicles? Well, start saving now so you can buy a nice, reliable, used car with cash a few months from now. Stay away from car loans and car leases. Remember, the name of the game is to stay out of debt.
How about saving money for some fun? You know, the financial wealth journey has to include some stops for fun and rewarding your hard work. You don’t have to wait until you are in your 80s for that cruise around the world. How about savingfor a short weekend getaway or a 2 week vacation? And don’t forget about saving for Christmas!
The skill of managing risks is essential because life happens. We don’t’ control many things that happen to us, but we can control how we prepare for them.
Review your insurance needs. It’s time to make sure you are prepared for what might happen. You need to properly transfer that risk to someone else via the wise use of insurance.
Prepare a will. We all come into this world with a limited time. You need to be sure that you leave accurate instructions for your loved ones when your time comes.
Get into the habit of checking your credit reportwith regularity. Each of the 3 Credit Bureaus is required by law to provide you with a free copy of your report every year. You could end up with 3 free reports each year (one from each bureau). Pay attention to your financial reputation.
Question: Where do you need to put more focus today on your finances, savings or risk management?
Do you have a will? If not, you are among 50% of Americans with children who have neglected this important step (Yahoo Finance, May 2012).
So what are some of your reasons for not dealing with this issue? You might think it is costly (it is not), or complex (it is not), or that simply you don’t have anything to leave to anyone so you don’t need a will (oh but you do).
Or you might just not want to think about your own mortality. However, the reality is that we will all face death and the sooner you face that fact, the better off you will be. So here are the 3 Reasons you should prepare a will:
Because it puts you in control: If you die without a will, the state takes over deciding what happens with your property. The state already has too much say in what happens in our private lives. There is no wisdom in leaving the disposition of your assets to the government.
Because it is simple and cost effective: You don’t need a high priced estate lawyer to do this. For most of us it is really a simple process. Personally I used an online service that provided my wife and I with the required state specific forms for our wills. It just took a few hours and less than $50 and we are able to put our last wishes on paper.
Because it shows love for your family: Imagine if something were to happen to you. In the midst of the grief and sorrow of losing you, your family also has to deal with the legal ramifications of what to do with your assets. Don’t leave a problem behind. Love your family to the end by taking care of your will preparation today.
What other objections or questions do you have about preparing a will?