3 Pillars of a Strong Financial Safety Net

NEW YORK - November 3, 2021 - (Newswire.com)

iQuanti: When it comes to surprise expenses, it's never a question of if they will happen, but when. That's why having a financial safety net is so important. It gives you the ability to roll with the punches that life can throw at you, and helps you swiftly recover from large expenses. You can best prepare yourself by saving as much as possible, giving yourself borrowing power, and making sure you have adequate life insurance. 

1. Savings and emergency funds 

Self-reliance is one of the most powerful qualities you can develop as part of your financial safety net. The more you can tap into your own savings in times of need, the less you have to borrow and pay interest to other sources.  

It's always a good idea to have an emergency fund, which is an amount of money that you have immediate access to in case of an emergency. Emergency funds also come in handy for covering surprises like car repairs, delays in receiving paychecks, medical bills, etc.  

Some people prefer to keep larger or smaller emergency funds than others, and there is no right or wrong exact amount to keep in yours, but generally speaking, it's good to have enough to cover six months of your living expenses in your emergency fund. 

2. Credit and borrowing power 

Borrowing power refers to your access to credit, or the amount that you could borrow on a credit card, personal loan, home equity loan, etc. Borrowing money to pay off expenses is not always the best first option, because you will have to pay back your loan with interest, but in case of an emergency, it's good to have access to credit so that you can immediately get what you need. 

Having good credit generally gets you access to higher borrowing limits and better interest rates, and maintaining a low balance on your credit card will also free up space for you to be able to borrow more if you need to. Always be mindful of interest rates, and if you have the option, you can look into consolidating your debt into a single, refinanced loan.

3. Life insurance 

If something were to happen to you, the people who depend on you financially will likely need more financial support than what your emergency fund could provide. This is why it's important to have life insurance, which will provide your beneficiaries with a death benefit if you die. The amount will vary from plan to plan, but generally speaking it's good to make the death benefit worth 10-15 times the amount of your annual salary.  

It's also worth considering different types of life insurance to see which one can best serve your financial needs. For example, if you only need life insurance coverage for a certain period of time, you'll want to look at term life insurance, whereas if you're looking lifelong coverage, you may want to consider whole life insurance, which provides a death benefit and accumulates cash value as you pay your premiums.  

The bottom line 

A strong financial safety net is made up of multiple contingency protocols that can temporarily replace your income in case of an emergency. The stronger your safety net, the better you can bounce back from surprise expenses.   

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Original Source: 3 Pillars of a Strong Financial Safety Net