Since it may take you a while to find a new job if you lose it, try to plan for the unexpected where possible. It’s advisable to keep 3 months worth of income in a savings account to cover your necessities during difficult times. Ideally, you’ll want to save up to a year’s worth of income.
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Your best bet to stay afloat is to secure several lines of income. Placing funds aside for alternative investments can give you breathing room to expand your knowledge base, go back to school, or invest in a business if you have one. Speaking of running a business…
Some people have to retire faster than others due to family commitments or sickness. It’s in your best interest to take advantage of retirement accounts, like your IRA and 401 (k). If your employer matches your contribution amount, there’s no reason not to pay into these accounts.
However, if your finances are delegated into separate checking accounts, you’ll be able to keep a part of what you earned from your business. What’s more, if you lose your business debit card, you can transfer your funds to your personal account to prevent further losses.
Buy Income Protection Insurance
If you live in the land down under, we recommend comparing income protection insurance in Australia through iSelect. Income protection insurance can pay up to 70% of your pre-tax income if a disability or illness prevents you from living your normal, day-to-day life.
If you do run a business or you’ve accepted a job in a seasonal industry, your income will fluctuate significantly month-to-month. Try to account for your leanest months, not your most profitable, so when your industry experiences downtime, you can safely live off your savings.
Diversify Your Income
Although it isn’t always possible to hold multiple jobs, invest in the stock market, or start a small side hustle. It will benefit you in the long run. If you only have a single source of income, you’ll be in trouble if you’re unexpectedly laid-off, as it can take 3-6 months to find a new job.
Separate Your Business and Personal Accounts
If you want to ensure your income stays as safe as possible, consider following our tips.
To get an idea of what you’ll likely need to live off of when you retire, calculate your current expenses, but add future medical costs and inflation. Subtract your living expenses if you plan to live in a lower-taxed state or lower-income country, as your money will be worth more.
Plan for Rainy Months, Not Rainy Days
Income protection insurance provides regular payments that replace 50-65% percent of your income if you’re unable to work. Depending on the waiting period, most people can receive monthly payments within 14 days. Payments stop after a period of time specified by your policy.
Feeling financially secure doesn’t necessarily translate to how much money you have.
Prepare for Retirement, Even in Your 20s
If you do run a business and you’re looking to secure a bit of money, you should separate your personal and business accounts. Say you get sued, or you have to declare bankruptcy on your business. If your funds are tied up in your personal accounts, you’ll lose all of your savings.
Your retirement accounts will minimize your taxes owed to the government as it subtracts your income tax. To pay as much into this account as possible, do your best to pay off outstanding debts and limit new debts. Don’t buy anything you can’t pay off right away (except a mortgage).
Although it obviously helps to have millions of dollars, that money might as well be worthless unless you have the right attitude towards money. In fact, lottery winners are more likely to declare bankruptcy than the average American prize winner.