Everyone wants to improve
their quality of life. Quality of life
improves as we have less negative stress and more peace in our life. Research, and common sense, shows that planning
for the future brings peace of mind.
There are many things we can do to increase peace and decrease negative
stress; I will cover three, focusing on our financial lives: 1) build a
reserve, 2) save and invest for short- and long-term goals, 3) protect yourself
through insurance.
Prepare for emergencies and build a
reserve
Your
family will have greater peace of mind and greater insulation from unexpected
financial difficulties if you build a financial reserve to act as a cushion for
rough times. Most financial planners recommend three to six months’ worth of
living expenses be set aside in a savings or checking account. These emergency
funds should be held in reserve for major unexpected needs—lost job, hospital
or medical bills, major home or car repairs, travel to a funeral, etc. In
addition to preparing a cash reserve, it is also important to build up
appropriate food storage and assemble 72-hour kits, first-aid kits, and other
emergency essentials to prepare against times of need. For additional peace of
mind, assemble a 3-month supply of food for your family.
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Invest early, consistently, and wisely
After
a reserve is built, you should begin saving for short- and long-term goals.
Some short-term goals may include purchasing a newer vehicle, upgrading a cell
phone, taking a family vacation, or buying furniture. It is gratifying to save
and sacrifice for these short-term goals. Saving and paying cash saves a lot of
money over buying on credit and paying interest. Avoid debt and rent-to-own as
much as you can.
Some
long-term goals to save for include paying cash for a car or making a down
payment on a home. You may also be saving for education, weddings, large
philanthropic contributions, funeral expenses, or retirement.
It
is never too early to begin saving for retirement. You and your spouse (if married) should
decide to save at least 10 percent of your income for retirement and understand
your available options. If your employer offers a matching contribution to a
401(k), you should always contribute enough to get the full match. There is no
other investment that yields a 100 percent return the first year! If your
employer does not offer a 401(k), then consider investing in a personal IRA
(Individual Retirement Account). 401(k)’s and IRA’s are tax-advantaged
retirement plans set up by the government to encourage retirement savings.
I
caution you against a few investment options. First, avoid speculation. Speculation is any
investment that promises a greater-than-market-rate return. Most of these are
scams or extremely high-risk ventures. Second, it is important to realize that
the only way to get greater-than-market-rate returns is to take
greater-than-market-rate risks. This means if you put money into investments
that promise large returns, you likely stand to lose a lot of money. It is much
better to take the “get rich slowly” approach and invest wisely for the long
term.
Protect yourself and your family through
adequate insurance
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insurance, that protects major investment, can provide a family with peace of mind. Marvin J.
Ashton
counseled: "Appropriately involve yourself in an insurance program. It is most important to
have
sufficient medical, automobile, and homeowners insurance; and adequate life
insurance
program.
Costs associated with illness, accident, and death may be so substantial, that
uninsured
families
can be financially burdened for many years." Marvin J. Ashton, “Guide to Family
Finance,” Liahona,
Apr. 2000.
Once
you have someone who is dependent upon you for income, you have a moral
responsibility to get life insurance. You should have enough insurance to
replace your income for long enough to raise your children and for your spouse
to be financially self-sufficient. Some financial planners recommend 10–15
times your gross salary. In general, term life insurance is preferable to whole
life insurance to obtain this coverage. In addition, be sure to have adequate
health, auto, disability, and homeowners/renters insurance. Because of the Affordable Care Act, almost
everyone in the United States is required to have health insurance. In general,
if you have little need for health services, you are better off to have a
high-deductible plan with lower monthly payments. However, if you interact with
health services more than average, it is usually better to have a lower
deductible and higher monthly payments.
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How
this applies to you…
Preparing for emergencies by saving
3-6 months expenses and preparing 72-hour kits and other emergency essentials
brings peace of mind in case of job loss or an unforeseen emergency.
Saving and investing for short- and
long-term goals helps you feel good about your accomplishments and less
stressed financially. Putting money
towards things you value (your goals) rather than daily living (e.g., going out
to eat every night) or items that are too expensive for your income (e.g.,
expensive car or home) allows you to enjoy life more fully. Knowing you have money set aside for
retirement gives you a sense of comfort knowing you are self-reliant and are
not dependent on anyone else once you retire. Start now, even if you only
contribute a small amount of your income.
Knowing you and your loved ones are
covered and insured against illness, accident and death brings peace of mind
for the present and the future. Living
without insurance is a financial disaster waiting to happen. Don’t put your family at risk, buy insurance.
The
bottom line –
Prepare for a rainy day by saving
money, food, and emergency essentials. Save and pay cash for everything you can
rather than buy on credit. Invest in
relatively safe options through a 401 (k) or personal IRA. Insure yourself and your family through
medical, automobile, homeowners/renters, disability and life insurance. Start now by choosing one preparation you
haven’t made and take the steps to accomplish it. Continue working on these essential
preparations until you are making improvement in each area. You will feel much less stress, much more
peace, and your quality of life will increase.
To learn more about
these topics, visit My Money Webpage and/or contact your local extension
office at NMSU Extension.
By: Bryce
Jorgensen, PhD
Family
Resource Management Specialist
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