Some aspects of financial planning are meant to get you where you want to go. Others are meant to protect you along the way. This post is about the latter, focusing on safeguarding your hard-earned progress by making sure you’re doing all you can to control risk.
Here’s a checklist of everything you need to protect your paycheck, your stuff, and your family’s sanity. If you’re on top of your financial and legal arrangements, then this exercise will be pretty easy. If not, it will help to highlight any gaps in your financial plan—before they become catastrophes.
Income Protection
Whether you’re still working or not, you need to take steps to make sure unforeseen circumstances don’t disrupt your, or your family’s, ability to pay the bills:
- Life insurance. If your family relies on your paycheck, or would have to hire someone to provide services you now provide (childcare, for example), then you need life insurance.
- Disability insurance. Most taxpayers have some disability insurance through Social Security. However, eligibility is strict, and the benefit won’t replace your entire paycheck. If you and your family would be financially devastated if you were unable to work, look into disability insurance.
- Emergency fund. Shoot for enough cash savings in an easy-to-access savings account to cover three to six months’ worth of living expenses.
- Income cushion. If you’re retired, have five years’ worth of living expenses that you expect to be covered by portfolio distributions in cash, CDs, or short-term bonds—just in case those distributions don’t happen as planned.
- A plan for growing your human capital. Your income depends on your ability to keep a job and merit ever-higher compensation. Think about ways to increase your skills, your value to your employer, and your worth in the marketplace.
