Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.

Build your financial safety net: Expert advice

5 experts to share their best tips on how to build your financial safety net.

Posted

Fact checked
woman putting a coin in a piggy bank

In a time of such financial uncertainty, individuals are learning to build their financial safety nets to protect themselves in the event of further turmoil. According to the U.S Bureau of Labor Statistics, 16.9 million people were unemployed in July and 57% (9.6 million) of them were unable to work because their employer lost or closed their business due to COVID-19. Understanding your financial situation, and learning to properly manage your finances and plan for an emergency is more important than ever right now.

We asked 5 experts to share their best advice on building your financial safety net, what to consider, when to start and how to protect it once you have it.

Megan Shepherd headshot
Megan Shepherd
Insurance editor, Finder

1. How should insurance be integrated into your financial safety net?

A smart way to protect you and your family’s finances is by investing in a life insurance policy. If you die, you can ensure your family has the funds to get by. Life insurance isn’t one-size-fits- all, how much protection you need and how much you’ll pay depends on your health and life stage. However, a term life policy is the cheapest and most simple form of life insurance, and can offer protection for up to 30 years.

A second component to your financial safety net should include disability insurance. This way, your livelihood is protected if you can’t work after a covered illness or injury. Choosing between long-term disability, short-term disability, or a combination of both will depend on what percentage of your paycheck you’d need replaced and for how long

Maggie Germano headshot
Maggie Germano
CEO and Founder, Maggie Germano Financial Coaching

2. Should married couples have separate safety nets in case of a divorce?

This answer is going to differ depending on who you’re talking to. Legally speaking, if you’re married, most of your assets are going to be viewed as joint assets, unless you have a pre-nup in place that says otherwise. However, in my personal life, my husband and I have separate emergency funds. We view them now as joint money, if we were to need them, but we know that if something were to happen in our relationship, we’d each have our own money to pull from in order to support ourselves. This is also a great reason to get a pre-nup, so there is clarity around who gets what in the case of divorce, and no one is left financially ruined.

Matt Frankel headshot
Matt Frankel
Certified Financial Planner and investment advisor
The Ascent, a Motley Fool company

3. What are some of the biggest consequences of tapping into your emergency funds when they are not needed?

It can take a long time to build up an emergency fund, and it can take a while to build your emergency fund back up if you tap into it. Now, if you need to tap into it, that’s fine — that’s why it’s there. But if you use your emergency fund to help pay for a vacation or other non-emergency expense, it can leave you financially exposed when a real emergency comes along.

Imani Francies headshot
Imani Francies
Finance expert
US Insurance Agents

4. What are some of the fastest ways to build up your financial safety net?

The fastest way is by putting money aside. The 50/30/20 rule, where you put 20 percent of your income into savings, 30 percent into discretionary spending, and 50 percent into household bills, is an excellent model to follow. Life insurance payments can be a part of the household bill sector of income.

Andrea Woroch headshot
Andrea Woroch
Money-Saving Expert
Andrea Woroch

5. How should individuals protect their financial safety net after creating one?

After creating your financial safety net, consider where to stash the money. Many people may feel tempted to dip into to the account for a small purchase here and there but that can eat away at your savings quickly. Therefore, I find it’s better to keep it where it’s out of site and out of mind and where it can earn a better interest rate so you actually make some extra money on your savings. Opening a high yield online savings account can ensure you get up to 1.05% back on your savings, compared to the low .01 to .03% offered by traditional brick and mortar banks.

It’s also a good idea to set up recurring contributions to this account so you don’t have to think about saving. When you take the effort out of saving and put it on autopilot, it’s easier to reach your goals. You can start small and then increase the amount you transfer by small amounts you won’t miss every few months. You will be amazed at how you learn to live on less than you thought you could with this strategy!

Seeking safety where safety can be sought

Many families are struggling financially due to the pandemic. If building a financial safety net is out of the realm of possibility at this time, there are federal safety net programs available in efforts to reduce poverty in America.

Sources:

U.S Bureau of Labor Statistics:
https://www.bls.gov/cps/effects-of-the-coronavirus-covid-19-pandemic.htm

For media inquiries:

More guides on Finder

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and finder.com Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site