Do You Need to Do More to Save for Your Future?

One of the biggest points of stress for most people, financial struggles and considerations can be an uncomfortable, difficult and even frightening situation. All too many people know first-hand what it feels like to be short on cash, not be able to make ends meet, or lack the money to take care of an emergency situation.

The financial situation of the average person is truly horrifying: most people do not have money saved for future expenses. This means that when tragedy strikes or an opportunity presents itself, many are unable to act. Even those who do save money and/or invest it may not be in a good enough position to weather the storms of the future.

Because it can be difficult to independently assess whether or not you are truly planned for the future, we’re going to review a few key considerations you’ll want to evaluate. Depending on your exact situation, you may not be as well-prepared for the years to come as you might think.

Are You Prepared for Short-term Emergencies?

Life’s little mishaps have a way of sneaking up on us when we least expect it. In order to truly be prepared for all life throws at us, it is vital to have a pre-determined amount of money on standby. Many people either haven’t saved money for this occasion or may not have enough to take care of that flat tire or tooth cavity.

So how much should somebody have saved for a short-term emergency?

Most financial planners recommend saving $400 for emergency expenses. This fund will be used to take care of those sudden mishaps that can pop up at any time, and will not require the use of a credit card or loan.

The answer to this most basic question regarding financial preparedness is “no” for half of Americans, who do not have $400 in savings for an emergency. Before you do anything else to plan for the future, building this nest egg for short-term emergency expenses is vital.

Are You Prepared for a Sudden Period of Difficulty?

If you already have at least a few hundred dollars saved for an unexpected one-time emergency, then you may feel as if you’re financially sound. Unfortunately, this is just the beginning of being prepared. While those little, one-time emergencies are the most common form of financial struggle many people face, they’re just the tip of the iceberg in terms of potential problems.

The vast majority of people are not currently equipped to weather a more severe, prolonged period of financial duress. This can manifest itself in all sorts of ways: a sudden job loss, a child or parent who becomes ill, a disability of some sort, or something entirely different.

We go through all sorts of phases and changes in life, with those shifts often being dramatic and disruptive. Financial planners recommend that in order to be prepared for these situations, you need to have anywhere from six months to one year of expenses saved. For most people, this amounts to several thousand dollars that could be needed at any given time.

If you were to suddenly lose your job or found yourself incapable of working, then who will pay the mortgage or rent? How will you feed yourself and your family? Would you be in danger of losing your vehicle? The ability to pay for these expenses for at least a few months is one of the main components of being financially prepared. Most people are merely weeks away from being homeless: avoid this potential fate by preparing in advance.

Are You Ready for Future Predictable Expenses?

Even if you are prepared for those little emergencies life throws at you and even if you have savings in place to cover expenses for a prolonged period, there are other factors to consider. Throughout our working years and as a result of having families, other expenses – often predictable – will appear over time.

One notable example of this is college tuition. If you have kids or even plan on having kids, finding ways to save for your children’s tuition is essential. Not only will expenses emerge for any person who goes to college, but other educational expenses – like childcare, field trip costs, sports equipment, etc. – will pop up along the way. Being prepared for these far-off yet predictable expenses is essential to your level of financial preparedness.

When Retirement Comes, Will You Be Covered?

The final and perhaps biggest form of being financially prepared relates to the final years of your life. We all wish to retire someday, but when we’ll be able to retire – or if we will at all – is largely determined by our level of preparedness in previous years.

Even if it is small amounts, preparing for retirement as soon as possible will yield exponentially larger returns in your senior years. People tend to invest smaller sums in their younger years, which grow by leaps and bounds over time, while they invest larger sums in their final years of employment to round off their retirement plans. Whether you are saving via your 401k, determining what you’ll earn via a 457 plan via a 457 calculator, or analyzing your options with a Roth IRA, there are numerous retirement plans and packages to consider. Many people find a balanced investment plan by considering all of these options, along with investments in various stocks and commodities. At the end of the day, a well-balanced retirement plan that covers your future expenses is the pinnacle of being prepared for the future.

In order to be prepared for the future, you have to consider all of the potential obstacles. Financially speaking, there are short-term emergencies, long-term shifts in your quality of life, future expenses associated with growing older and/or raising a family, and retirement considerations – all of which require preparation.

If you can legitimately say that you are prepared for all four of these situations, then you’re one of the few who is adequately prepared financially for the future. If not, then you’ll definitely want to double-down on saving, investing and spending wisely until you can be secure in all of these situations.

Thanks to Carol Trehearn