Case Study on Daniel who is single and in his late 40’s. His annual income is $75,000. Mortgage on his condo is $65,000. He has credit card debt of $5,000 and auto loans of $10,000.
If you are like Daniel, by the time you reach your 40’s you think that you have it all figured out; after all, you have been through enough financial challenges. You finished college and paid your way. You own a home and paid many expenses on improving the property. You have taken additional classes to advance your career and paid for that. Every financial challenge that you have faced, you have conquered – so you have it all figured out, right?
Yes, you have accomplished much, but, are you prepared if you have a major event? Will you fall apart financially if some unexpected major event occurs to you or your family?
A major event could be a new job, moving, marriage, divorce, death or a spouse or child, personal illness or taking on the responsibility of caring for your parents. These situations may seem like every day events, but they are not because they are unexpected. Sometimes these unexpected situations require so much additional financial resources that you may not be ready. You do not plan for an illness or the death of a loved one; but you can plan financially for those situations by preparing today.
Keep your debt low. First, pay off your credit cards. Second, pay off your auto loan. Third, pay down your mortgage. Once you lower or zero out your debt, save half of your pay check every month. Have a goal of building up an account to equal a balance that is half of your annual income. This safety account will be your financial cushion for any major event that may occur.