Everything you need to know about building a financial safety net
Achieving financial security requires good management of personal finances. However, it is not always easy. Some people find it difficult to manage the many tasks that come with it. Debt management company Lowell reviewed some of these tasks and outlined what you need to know about building a financial safety net.
What is a financial safety net?
Having a financial safety net means more than just creating an emergency fund for unforeseen events like illness, job loss, car repairs, or other personal tragedies. It is a well-organized set of measures that reduce the risk of losing your financial security or reaching your short- and long-term financial goals.
Simply put, this means purchasing different insurance policies depending on your personal situation, building up an emergency fund, controlling day-to-day finances, investing, and creating and following a financial plan to meet your short-term and long-term goals. long term.
What are the money management tasks that people have the most difficulty with?
According to Lowell’s research:
- 66% of Britons find it difficult to build a financial safety net to fall back on when needed
- 60% are unable to save for specific long-term purchases
- 59% can’t seem to find ways to make more money from their savings and assets in the future
- 52% find it difficult to save for experiences and activities
- 33% are unable to meet a budget
There was still some good news. Research has found that 80% of Brits find it manageable to keep track of their regular bills and payments. In addition, 67% say they can control their spending.
The research also reflected mixed feelings about what was most important to achieving financial security. For example, 37% of Britons felt that building a financial safety net is the most important task in personal finance. That said, 24% thought it was more important to find ways to make more money from savings and assets. Another 22% thought sticking to a budget was the most important task.
How to create a financial safety net?
John Pears, Managing Director of Lowell, shares four tips to get you started.
1. Prioritize your debts
Taking out a loan can be a good financial decision. But things could get worse, especially if you don’t think much about your financial decisions or if you don’t create and strictly follow a financial plan.
Make plans to pay off your debts on time. This not only puts you in a comfortable financial position, but also allows you to have a good credit rating.
2. Start small
While it is recommended that a good financial safety net cover three to six months of your expenses, saving that much can seem overwhelming for some people. John Pears suggests considering this as your end goal. You can start saving small, and eventually it will add up.
3. Prioritize needs, wants and savings
Since 60% of Brits are unable to save for specific long-term purchases, John Pears suggests making a habit of understanding and differentiating your needs and wants. Make a list with three columns: absolute necessities, wants, and luxuries. This can help you get a clear idea of how much you can save each month.
4. Do a financial spring cleaning
You will need to watch all of your entrances and exits. Where is your money going? Can you reduce your unnecessary payments or expenses? You may realize that there are things you can do without and others that have cheaper alternatives.
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