Like most people, you probably own a toolkit. It’s somewhere in your garage or basement, or maybe even a closet or drawer. This kit is all about being prepared for whatever renting or homeowning throws at you. It contains a hammer, a screwdriver, and a wrench — the basic tools you need to hang a shelf or install a TV mount.
In the spirit of being prepared for anything that comes your way, you should consider your finances in a similar way. Just as you collect hardware tools for your home, you should gather financial tools that help you maintain your budget’s health.
If you aren’t sure what you need to equip a basic kit, you’re in luck. Here’s a list of five indispensable tools that help support healthy finances.
1. A Budget
The budget is the cornerstone of good money management, provided you follow a balanced spending plan.
A well-organized budget helps you earmark money for things that you value, from essential bills and savings to vacations, renovations, and more. Think about the goals you want to achieve before making your budget today.
2. An Emergency Fund
Even the most detailed budget can be wrong sometimes. You might not be able to predict that hale stone that shatters your windshield, or the kidney stone that sends you to urgent care. Having a stockpile of savings can help you handle unexpected auto repairs and medical expenses that don’t fit nicely into your budget.
Most financial advisors recommend saving three to six months of expenses to prepare for the unexpected. Unless your last name is Bezos, you won’t be able to save this overnight. Instead, focus on what you can do to save a little extra every month to build your fund gradually.
3. A Line of Credit
An emergency fund is meant to be used, so there may come a time when your savings are at an all-time low. Unfortunately, emergencies have a way of happening when you’re least prepared, so you might have to field another unexpected auto expense before your fund is ready.
A line of credit can be a financial ace in the hole, providing cash on standby for emergencies like these. To learn more, you can visit a website like MoneyKey about the differences between lines of credit and installment loans. If you like the sound of using a line of credit as a safety net, you can try to get started through MoneyKey with a simple online application.
4. Retirement Fund
While you may not use this financial tool any time soon, it’s one of the most important ones on the list. Having retirement savings gives your future financial security. It provides you with the means to give up full-time work without worrying about how you’ll pay the bills in your golden years.
Contributing to your 401(k)s and IRAs as early and as regularly as you can is the key to growing these savings. This maximizes the power of compounding interest.
Auto and health insurances are also crucial tools that provide protection against the unexpected, especially when the unexpected outstrips what your emergency fund and line of credit can handle. While they’ll add monthly expenses to your budget, the coverage you receive can safeguard your finances in the long run.
Build Your Toolkit Today!
Forget about hammers and wrenches. Start thinking about emergency funds and lines of credit. These financial tools give you the means to build a secure financial future.