Financial Security: The Secrets to Generational Wealth

Last Updated by Neiko Johnson on 
July 24, 2021
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Financial Security The Secrets to Generational Wealth

First off, this time would be different with a sense of financial security. For many, Covid-19 has highlighted an area in our lives that we need to get a handle on immediately.

Our finances. Now, more than ever, we need more security and a lot of reassurance. Our day-to-day operations have been halted and our lives have been changed.

These are the moments of uncertainty that can lead us to place fear over facts. And make us doubt the power that we all have. Financial security protects you in many ways. Most importantly, it helps in the unexpected.

Further, financial security is broken down into three components. Building an emergency fund, having proper insurances in place, and establishing a last will.

Today, we will walk you through the process of establishing all three of these key components. Certainly, this will be helpful when times feel uncontrollable.

Financial security gives you control when you feel unsure on how to move forward.

Let's get started.

Financial security: clutch fund

To begin, a clutch fund is your safety net for the unexpected life events that you may experience.

Most importantly, when it comes to an emergency it is not if but when. That is to say, if you are currently in debt it's best to start with a smaller clutch fund. We recommend at least $1000.

But, could be slightly higher not to exceed $5000. The smaller clutch fund is used to make sure that the bulk of your funds are being used to eliminate your debt. Once your debt is paid off, you need to set aside 3-6 months of expenses for your clutch fund.

Related content:

Here are the top 7 unexpected emergencies:

  1. Emergency room/urgent care visit
  2. Broken car/flat tire
  3. Emergency visit for pet
  4. Last minute travel (family emergency)
  5. Broken tooth/abscess
  6. Pipe burst
  7. Job loss

Your clutch fund is designed to cover 3-6 months of expenses. To clarify, expenses are different than income. The clutch fund is created by calculating minimum expenses. Your old friend, the budget, is how you know what your minimum expenses are. Certainly, your budget will be key in establishing a sense of what a typical month worth of expenses are. With a normal stable job, save 3 months of savings. On the other hand, if your income is less stable, save about 6 months of expenses.

Further, your clutch funds should be stored in a place that is easily accessible. The best place to park this money is a checking or money market account.

Certainly, make sure that this money is completely separate from your regular checking account. Most importantly, this ensures that your clutch fund is used only for emergency situations and not mixed with regular monthly expenses.

So, how do you know when it's okay to use your clutch fund? There are a few questions to ask yourself. Is this a true emergency? Unexpected situation? Necessary to handle at this moment? Answering yes to all of those questions would likely mean to use your clutch fund. On the other hand, this is likely an item you can cover at a later date if you answer no to one or more of the questions,. That is to say, you can meet your other financial goals faster by limiting spending your clutch fund.

Financial security: insurances you can't live without

Insurance coverage is similar to a spare tire that we keep in our trunks. For example, it comes with its own weight. Sometimes needs attention to make sure it's working well, And is a blessing when you need it.

However, without insurance a trip to the emergency room or a minor fender bender could take a chunk out of your emergency savings.

Here are 6 insurance recommendations:

  1. Auto insurance
  2. Homeowners/renters' insurance
  3. Health insurance
  4. Long-term disability insurance
  5. Term life insurance
  6. Identity theft protection

1. Auto insurance

While it's against the law to drive without insurance, it's recommended that you have coverage above the minimum. Most importantly, auto insurance is important to protect you and other passengers.

In addition, it provides protection for your vehicle and covers any other individual involved in a car accident.

Liability coverage - This type of coverage is required in most states. Liability coverage covers both bodily injury and property damage liability. Both are needed in the event that the accident was your fault.
Comprehensive coverage - This insurance covers damage to your car. It covers things such as: theft, fire, hail or vandalism. Comprehensive coverage helps to repair or replace your vehicle when covered damage applies. This comes with a deductible that you pay out of pocket. Your insurance company normally reimburses you. This type of insurance is optional in most states. However, your lender or leaseholder may require it if you are buying or leasing a vehicle.
Collision coverage insurance replaces or repairs your vehicle after a collision with another vehicle or object. Collision coverage also comes with a deductible. This type of insurance is optional in most states. However, your lender or leaseholder may require it if you are buying or leasing a vehicle.

2. Homeowners/renters' insurance

Most homeowners have a policy that cover the basic dwelling. Check with your insurance agent for extended dwelling coverage, flood insurance (if needed), and earthquake coverage (if needed). Renters make sure to protect yourself with insurance as well.

Above all, renters' insurance is relatively inexpensive. It will cover expenses such as lost of belongings due to fire, flood, theft or other disasters.

Most importantly, saving money on your insurance allows you to re-purpose your money. Therefore, we suggest comparing your auto, home, and renters' insurance quotes at least annually using Gabi Personal Insurance. This free service does cost comparisons with up to 20 companies.

3. Health insurance

Unfortunately, medical incidents are fairly common. But, health insurance is one way to prevent a medical incident from nearly bankrupting you. There are a variety of plans to choose from that range in costs.

A good choice for those who do not go to the doctor often may be a high-deductible plan. This can be combined with a Health Savings Account (HSA). The high-deductible plans may have more upfront costs depending on how often you go to the doctor.

However, they have a lower monthly premium. Most importantly, an HSA is a tax-advantaged savings account with great benefits. The benefits include: tax deduction, tax-free growth, and tax-free withdrawal.

4. Long-term disability insurance

Long-term disability insurance covers you when there is a loss of income due to illness or injury. The Social Security Administration reports that 25% of 20 year olds will become disabled before reaching 67.

Most companies offer long-term disability insurance. However, you can seek additional coverage if your employer does not offer enough. Further, short-term disability insurance is another type of coverage.

If you are currently in debt, short-term disability coverage usually covers the loss of income for 3-6 months. On the other hand, if you are not in debt and have your clutch fund in place you may forego short-term disability coverage.

5. Term life insurance

Life insurance is put in place to cover those who depend on your income in the event that your unexpected passing occurs. Experts say that the amount of coverage should be about 10-12 times your annual income.

Most importantly, this is one of the best ways to take care of your family even when you are no longer living. If you need help with term life insurance, we highly recommend Haven Life. Additionally, they have a completely automated process with an A++ rating.

6. Identity theft protection

Identity thieves steal billions from U.S. consumers annually.  Identity thieves can destroy your credit, take out mortgages, file false tax returns, and a host of other financial damages. It's a real headache if they get their hands on your information.

Having fraud protection in place can guard you against a huge mess to clean up. So, if you have been struggling with finding an identity theft company, we use and recommend IdentityForce.

IdentityForce delivers ongoing monitoring, rapid alerts, and recovery services to help protect against ID theft.

Click here to sign up for IdentityForce.

Financial security: establishing a last will

Creating a will is the final step in financial security. In addition, a last will determines where your belongings, savings, and property go upon your death.

To get started with your last will, visit LegalZoom. LegalZoom provides specific legal documents to help establish your last will. In addition, our link will take you directly to the last will and testament page.

Creating a will is simple. Here are the steps to making a will:

  1. Decide what to include in your will. Be specific and itemize everything of value (collections, properties, accounts, etc.).
  2. Select your beneficiaries. For all items listed be specific of the recipient (list by name).
  3. Choose the executor of your will. This is the person that carries out your wishes listed in your will (ethical, level-headed, trustworthy).
  4. Name the guardians of your children (if applicable).
  5. Sign in front of witnesses. Have your will notarized in front of witnesses (this may not be required with LegalZoom).
  6. Have a safe place to store your will. A safe is the best place to keep your will (make sure your executor has access).
  7. Keep it updated as life changes (childbirth, adoption, marriage, etc.).

Therefore, creating a will is pretty straightforward. For most of us we don't need an attorney to establish a will. All you need is something to take care of basic property, children, investments, and personal belongings. In addition, most of this can be done online. That is to say, you can accomplish your last will in less than 15 minutes.

Financial security: final words

In conclusion, creating a will can bring mixed emotions. To be clear, making a will does not increase the likelihood of you passing, nor does it accelerate the process. In other words, creating a will simply secures your family for the future. Ultimately, you're giving your family comfort in a difficult time while they're grieving. Above all, you must take care of those you love now and forever. Build your legacy and prevent the causes of financial difficulty. Start focusing on your financial security today!

About Secret to Finance

Neiko and Alexis paid off $240,000 of student loan and consumer debt in 27 months. Most importantly, they started Secret to Finance to share their story and help others build generational wealth. In addition, they assist others with creating a financial plan, budgeting, and getting out of debt. Ultimately, following these steps will lead to financial success.

Article written by Neiko Johnson
Neiko is a personal finance expert and Co-founder of Secret to Finance. Along with his wife Alexis, they learned how to get out of debt and pay off $360,000 in 36 months.

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