107- Why You Need A Personal Financial Safety Net
Updated: 3 days ago
I have been trying to come up with a way to clearly and easily explain why individuals need to financially look after themselves and become more self-reliant. It’s like telling someone to lose weight, get more sleep or exercise better self-care. The message for some reason does not seem to resonate. You and I both have friends we know that party too much or are too much of a foodie for their own good.
With money matters I see, hear and come in contact with so many people who, with a little planning and discipline, could radically improve their financial affairs. I know this effort would enable them to reduce the stress and anxiety they and their families are experiencing.
So I have come up with the idea of the “Personal Financial Safety Net” to try to help. You can visualize what I mean – if you are a Cirque de Soleil performer you need to have some safeguards (a net or cord) in place regardless of your athletic and performing skills.
From a financial standpoint there are 6 key things that I believe make up your personal safety net:
Basic Money Knowledge
You can’t deal with the money issues in your life without basic knowledge about money, how it works and how to effectively use it. Spend at least two hours per week improving your knowledge and it will pay significant dividends for you.
Developing A Mindset/Money Awareness
You can’t be successful in your financial journey without having a money mindset. Money actions need to become second nature to you. You need to act reasonably and responsibly without thinking about it. To have such a money mindset you need to want to do it.
Adopting Reflective Practices
I know the moment I mention that you need to have a cash budget about 50% of my readers prepare to jump off a cliff and want to say nasty things to me. So, let’s look at a budget differently. It is a practice that makes you reflect on what you are and will be earning and spending. As I have written, putting a cash budget in place changed my money life and as I have taught others about how to do it, their lives also. You have to take time to make sure you have more cash inflow than outflow and that you are saving/putting away funds for your future needs and emergencies.
Putting Insurance Coverages in Place to Mitigate Risks
Paying for the cost of the unexpected and delivering cash in the future when it is needed is what insurance does. Be it vehicle, health, life, disability, or accident related, these coverages provide cash for future delivery in case you need it. Think of them as GoFundMe campaigns where you make ongoing regular donations (premiums) that will result in a guaranteed payout to you if the uncertain event takes place. Overall, insurance coverages for the most part allow you to eliminate or minimize financial risks in your life for a reasonable amount of money.
Creating an Emergency Fund
As part of your safety net, you have to create an emergency fund to give you a cushion in case life gives you some unexpected, uninsurable twists and turns such as an illness, a non-warranty related car repair, an accident, severe weather events or as in recent times—a pandemic. Having such a fund enables you to have the resources needed to pay the costs of the unexpected that typically can’t be insured.
Maintaining Your Ability to Earn A Self-Supporting Income
The most important foundational building block of your personal financial safety net is your lifelong ability to earn a decent income. The decisions you make on what type of college or trade education you get; ongoing skills training and work experience build to create the employable person you are. What income you can generate based on your skills and experience stays with you your entire life and mostly dictates your cash inflow. Without the ability to earn a sufficient income, life in the FinancialVerse can be problematic.
To enable yourself to be as financially successful and secure as you can be, you have to spend time putting in place your personal financial safety net. It takes a little time, study and investment. It has at least six key dimensions. At the end of the day it can tremendously change your life and that of the people you love. Being relaxed about money matters in your daily life enables you to live life to the fullest and enjoy each moment in a mindful way. It is just so important to enjoy your life’s journey. The personal financial safety net really helps.
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