Cake is an end-of-life planning tool, not a financial advisor. So take these bits of advice with a grain of salt, and apply them to your own life where you see fit.
Life’s ups and downs are easier to weather when you are financially prepared. This applies to the unexpected hardships that happen while we’re alive -- and also the hardships our loved ones experience when we die someday.
Emergency planning and finances are intimately entwined, and taking the time to organize them will reduce stress when bad things happen — whether that be an illness, an accident, or even your own death. With that in mind, here are some ways to get a better handle on your money and be prepared for whatever comes your way.
1. Take stock of your assets & make a will
An essential part of estate planning involves taking account of the assets you own, and what should be done with them once you’re gone. Before you decide who you want to leave your assets and money to someday, you should take an inventory of what you actually have first. You can use Cake to create an inventory of your assets and accounts to make this task easier. Once you’ve done this, writing a will is much easier, especially if you want to leave your assets to multiple people.
2. Have an emergency savings fund
Your financial stability dramatically impacts how well you are able to handle the unexpected when life goes sideways. This fund can also serve as a source of money for your own final expenses someday.
Here are some not-so-uncommon scenarios that an emergency savings account can come in handy for:
- Loss of income: you lose your job
- Medical emergencies: you are ill or hurt
- Unexpected expenses: such as travel costs for a family funeral or illness, veterinarian bills
- Housing emergencies: the furnace breaks, roof leaks, etc.
- Transportation: if the car breaks down but is critical for work
- You die: your family can use this money for final expenses
Things to consider when creating your emergency fund:
- Work towards funding your account with enough money to cover your basic living expenses for at least 6 months
- Choose a liquid account (e.g. a high-yield savings account) so you can quickly access money in an emergency
- Make sure it’s accessible, but not too accessible. In other words, keep this account separate from your day-to-day banking accounts. It’s an emergency account, so save it for just that—emergencies. Don’t dip in and out.
- Name a beneficiary on your account in case something happens to you. This will ensure someone can quickly access funds for your medical and/or final expenses. Be sure to let them know they are listed as the beneficiary!
3. Fund a retirement savings account
If you don’t have a retirement savings account yet, it’s time to start! The earlier, the better. If you already have retirement accounts, can you contribute a bit more each month? As people are living longer in retirement, more money is needed to live comfortably and fund medical care in the later years of life.
Cake Tip: Think you can't save for retirement? Start by siphoning off a few percentage points of your income automatically each month and see if you miss it. If you don't, siphon another percentage point the next month. Then another until you find your comfort zone for retirement savings. Turn it into a challenge!
4. Lower your debt
Just like your possessions, property, and cash, debt can be passed down, too. Here are a few things to think about to help get your debt in check:
- General advice from experts is to pay down the highest interest rate first
- Try to pay more than just the minimum balance
- Cut back on non-essential expenses until you make progress. You can probably get by without 3 video streaming services and regular takeout delivery for a while! At the same time, don’t starve yourself of fun to the extent you can’t enjoy life. This may lead you to burn out in your debt paydown quest.
5. Assess if you need life insurance
We know life insurance isn’t something people love to hear about. You’re probably bombarded with ads from insurers. But it can be an essential financial protection for people under certain circumstances. Here are some questions to ask yourself:
- Do you have dependents, low savings and high monthly expenses?
- Have young kids?
- A mortgage?
- Owe substantial debts that your family would be liable for if you died unexpectedly?
Gulp. If some of those hit home, you may want to explore the idea of insurance for more peace of mind. Take a life insurance assessment with Cake to see if it’s something that makes sense to explore further.
6. Start a budget
There are many different ways to slice and dice the basic rule "don't spend more than you make." One of them is called the 50/20/30 rule, and it’s a nice, basic place to start:
- 50% Essential Expenses. This includes four things: housing, transportation, utilities, and groceries.
- 20% Financial Priorities. This includes things like an emergency fund, paying off debt, and saving for retirement
- 30% Lifestyle. This is everything else; what fits into the “voluntary and fun” category: eating out, pets, entertainment, cable tv, hobbies, charitable giving, personal care, and anything else you spend money on.
There are plenty of free online tools like mint.com that make building and following a budget easier.
7. Reset your relationship with money
- Spend less than you make. Period.
- Follow your spending. Even just for a month, see where it all really goes. Track your progress and celebrate your success.
- Go through your monthly bills in order to find and eliminate excess regular expenses.
- Get your interest rates down on credit cards. Call and ask to lower your rate, or shop around for a lower interest card.
- Plan ahead. Save up for trips, make a grocery list and stick to it.
- Pay yourself first. Set up auto-payments to saving accounts to make sure you don’t spend your money before you can save it!
- Spending less on little things adds up. Bring lunch to work and take public transportation instead of paying for parking. $15 per day adds up fast.
- Shop smart. Compare prices first, buy things on sale, ask for a discount.
- Value what you have. Take care of your stuff and maintain it so it lasts longer; fix and repair things instead of buying new ones.
Cake’s favorite piece of financial advice? "Find the joy of living within your means." —Sandy Fernandez, AOL Money