How Strong is Your Financial Foundation?
Have you ever seen a building built from the ground up? The first and arguably most important step is setting up your foundation. The foundation provides support for the entire structure. Once that foundation is in place, the rest of the building seems to go up pretty quickly.
Your financial foundation is like a building’s foundation. It is extremely important to have a secure financial foundation in place before even thinking of accumulating wealth, let alone achieving financial independence!
Let’s discuss workplace benefits.
When you work for a company some of these benefits are included, and are actually provided with no charge to you. Many times you start a new job and you sign away on all these forms, without even thinking about what the impact to you might be financially.
Take a second look at the paperwork!
Consider the following:
- Every year you typically have to re-enroll in these plans.
- How you’re answering those questions when you sign up may not reflect future feelings.
- Always think through these four important questions in preparing for your own financial foundation.
“What if I live a long life?”
Think financial independence. Workplace Benefits often aid wealth building, and even retirement.
- 401K, profit sharing, defined benefits
- Employee stock purchase plans, or restricted stock, stock grants and options
- Health spending account, flexible spending accounts
All of these things provide you the ability to build wealth and to accumulate assets for some point in your life where you would like to take things easy, slow down or even stop working. The more money you have, the bigger the income you’ll have available to live without a paycheck. The most important question to answer for living a long life on your saved assets isn’t what everyone thinks. While most will ask what’s the magic number? A number is a moving target. The more productive question is what budget can you realistically live off of; and how much income can your portfolio generate without tapping into your principal? When you don’t touch your principal and live instead of the income and growth it provides, you have a higher chance of success not outliving your money in retirement. It’s very important once you start accumulating investments or company stock at work, to know how and when to diversify. TechGirl Financial helps many professionals work on sell strategies with workplace benefits and diversifying the assets to lower your risk and create a greater likelihood of financial independence.
“What happens if I become prematurely disabled?”
Statistics show you are more likely to become prematurely disabled than have a premature death. Yet most fixate on life insurance and leave themselves less protected when it comes to disability.
What happens if you become disabled?
If it is short term or long term, will you be able to live in the same standard of living you’re accustomed to if you can no longer physically work?
That’s an important question to answer for you, and your family.
Often times there are social security benefits you may be able to receive in a disability situation.
But, is it enough?
You also have company benefits, but are those enough?
How long does it take for you to receive those benefits? Will they be taxed?
Do you need a little bit of safe money to help you between the times where you will actually be eligible for those benefits?
Consider these questions, making sure you can answer them comfortably in order to be satisfied and to protect you and your family in the event of a disability. If you are relying on a company disability benefit, what happens if you lose your job or change jobs? Will the new coverage be enough? If you decide on going self-employed and doing contract work, make sure you purchase your own policy to keep yourself covered when the workplace benefit disappears.
“What happens if I don’t wake up tomorrow?”
Think about your loved ones, they are going to be emotionally stressed out if you’re no longer living. They don’t have to be financially stressed. Enter life insurance.
In the case of dying unexpectedly, life insurance will provide your family with an income.
Often companies offer employees life insurance benefits.
But, what if you lose your job?
Making sure you can provide for your family in emergency circumstances with or without a job is a question you should always be able to answer comfortably and honestly.
Protect your loved ones from losing their homes, employment, or taking on any unnecessary financial struggles.
Your family is going to be worried enough just understanding how to get by without you. Don’t make it financially uncomfortable for them as well!
When figuring out how much life insurance you need, think of how much income the insurance can provide for your family to cover the obligations you have to them.
Lastly, “What happens if you or a family member are subject to a medical catastrophe?” Do you have enough money saved away?
You can always expect at least two hazards that come along with a medical disaster:
-MAX OUT OF POCKET
Make sure you know what that amount is, and make sure that it’s saved away securely, in the event a medical emergency occurs.
I have seen families struggle through bankruptcy because of medical emergencies. But you can make sure that this doesn’t happen to you!
Covering a bill with a credit card that you’re not able to pay off at once is extremely risky. Expect paying really high interest rates. There are other options instead of paying medical bills with a credit card. Ask your medical provider what terms they have. This will help you, if you run into a situation you were unprepared to have occur.
Instead of being unprepared, calculate how much you’re deductible and max out of pocket will be, and save that money along with your emergency living expense reserve.
We’ve discussed how workplace benefits can be valuable, but what happens if you want to go work on your own?
It’s just as important that you have those benefits for yourself, but you’re going to have to pay for them out of your own pocket. Again, you need to measure what your income could be like working for a company versus working for yourself. Keeping in mind you will still be paying for your lifestyle needs, while protecting your financial foundation.
These are the kinds of questions TechGirl Financial helps clients with every day
Be sure to take a look at our workplace benefits worksheet in the Learning Library. We look forward to helping you build your own financial foundation!