If there’s anything people learned from the recessions and global crises of recent past, it’s that no one is immune to economic upheavals.
Even middle to upper-class families are at the mercy of their finances when misfortune strikes. This can come in the form of sudden unemployment, a family breakup (divorce), business closure, a severe health condition requiring long-term treatment, or something bigger like a global pandemic.
While an emergency fund and savings provide some measure of security against financial pressures, these may not be enough if the problem persists for months or even years.
Therefore, it’s never too early to start future-proofing your family finances to secure your children’s future and ensure you’ll be able to weather challenges that’ll come your way.
To get you started, below are some tips shared by a personal finance advisor for anyone looking to build their family’s financial resilience:
1. Budget your expenses.
This one is a no-brainer and is probably one of the most common tips mentioned in the best personal finance books. However, this is also advice where a lot of people falter as, during times of plenty, the temptation to overspend is strong.
Start by reviewing your monthly budget and identifying areas for cost savings. While eliminating all indulgences is not necessary, it’s good practice to reduce recurring expenses and bills.
For starters, you may decide to eat out once a week instead of several times. You could also work on raising your credit score or maintaining a clean driving record to get your auto insurance payments reduced.
With every cent you shave off your budget, you’ll be increasing your emergency fund or save enough to purchase a life insurance policy. All together, these will help in building the groundwork for your financial future.
2. Identify multiple income streams.
There was a time when parents having good jobs was enough to keep a family financially secure. While it’s true that a well-paying profession is great, it comes with the risk of job and income loss if a recession were to happen. Therefore, it’s better to have more than one source of income.
It can come in the form of a small-scale side business, part-time employment, or alternative investments. When you take advantage of opportunities to earn a few extra dollars, you’re not only protecting your finances but also building it up at the same time.
3. Pay off debt.
People who are deep in debt experience stress, both on normal days and in times of need.
If you have too many loans, even a minor setback, such as a rise in interest rates or a drop in household income, could become a major problem. The unsettling reality is that certain debt, like mortgages, can last well into retirement.
Experts in personal finance advise people to apply the ‘avalanche approach’ in debt repayment. That is, pay the minimum amount due each month on ongoing low APR bills while giving high-interest loans priority. You can keep yourself motivated to pay off debt by using the best personal finance software to monitor your financial growth.
Secure your family’s future
Future-proofing your family finances is a noble, practical goal that requires commitment and discipline.
Good thing information is on your side, as you have access to some of the best personal finance apps for free, as well as advice like the tips shared here. The only thing left is for you to act. Good luck!
If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.