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Ensuring Business Continuity: How to Keep Your Company Jerk-Free


business continuity plan for financial advisors

We all know we need to save money, but why don't we do it now?

In the past, her grandmother would keep her money in a coffee can and put it on a kitchen shelf, or some variation of that method.  She gave him quick access in an emergency, but she kept away from normal cash so it wouldn't be spent on a whim.

Nowadays, most people don't spend their money on a can of coffee.  The sad part is that most Americans don't save anything.  Only 41% of us can use our savings to pay for an emergency.  (1) Sure, life is a little more complicated than it was back then, but we should all be able to set aside a little money to cover a basic emergency.

So how do you create your savings account and your future?  Here's a quick summary:

• Build your emergency fund first.
• Save savings before you spend.
• Planning large expenses and trips.
• Don't touch your retirement savings.
• Keep savings separate from the checking account.

By following these five tips, you'll not only be able to afford an emergency trip to the vet, but you'll also be able to save money for retirement.  Let's go deeper!

Create your emergency fund first

Before you save money for anything, whether it's a down payment on a house or a trip to Alaska, you should build an emergency fund.  If you still have debt, start saving that $2,000 as soon as you can.  Next, pay off any outstanding debts.  When these two things are taken care of, you can start building up your emergency savings.

Now, we're not talking about having $500 in the bank to cover a broken water heater.  You should have at least three to six months of expenses set aside in your emergency fund.  Why all this money?  Because you need to be prepared in case something happens to you and you can't work for several months.  Or if you lose your job unexpectedly.  This fund will allow you to keep the family running, keep your mortgage payments current, and turn on the lights.

You may be thinking, this would not happen to me. My job is secure and my health is excellent.  I don't need to save a lot.  But unfortunately, many people with this mindset end up trying to get out of a bunch of bills and payments later.  They are unable to save money for their retirement years because they are trying to get back on solid financial footing.

Let's take John and Cindy, for example.  He is a policeman and she is a hairdresser.  They have two children, ages 16 and 13.  They still owe a mortgage on their home, but have been investing regularly to stay on track for retirement.  Things were going well, but John got injured while he was water skiing with some friends.  He was unable to work for four months, and Cindy's salary could not make ends meet even though she took on more clients.  As a result, the two defaulted on their mortgage payments.  Now they have financial problems and must stop investing in order to pay their bills.

Imagine how different John and Cindy would feel if they had this emergency fund.  Or to bring it closer to home, imagine how much better you'll sleep at night if you know you could lose your job tomorrow but still provide for your family.

Now you know why it's important to have an emergency fund with expenses for three to six months.  If you haven't completed this step, this is your first goal.

Put savings before you spend

If you really want to make money, make saving a priority, not the last thing you do when you've paid for everything else.  To do this, you need to create a monthly budget that includes a savings clause.  If you've created a monthly budget and don't have savings included in it, you should cut back on some of the extras so you can save for future expenses (like vacations, furniture, car replacement, etc.).  If you don't prioritize and budget for savings, you won't have anything saved, and that's not a good thing.

In addition to saving for future expenses, you should save money for retirement.  Once you're out of debt except for a mortgage and have that emergency fund, you'll need to put 15% of your income into an investment account, most likely a 401(k) through your employer.  If that's not an option, you can put it in an IRA (go Roth instead of traditional whenever possible).

Do you feel like you don't even know where to start when investing?  We did it.  There are a plethora of banking, paperwork, and financial terms that can leave you feeling disoriented.  If you feel this way, find someone you trust to sit down with you and guide you about your money.  If you don't have anyone in mind, we recommend finding SmartVestor Pro in your area.  These are financial advisors who believe in the same investment principles that we follow here at Ramsey Solutions.

Plan for large expenses and trips

Saving for the future and living in the present is juggling.  You want to enjoy your life now and save it for later.  So how can you put those things on your to-do list right now without hurting your retirement fund?  You are safe because of them.

Let's say you want to take a trip to Ireland.  He did his research and created this quote:

•    Air travel: $2,000
•    Car rental: $700
•    Gasoline: $500
•    Housing: $650
•    Meals: $200
•    Vision: $250
•    Extras: $450
•    Total: $2,500

$4,500 divided by 10 = $450 per month $4,500 divided by 18 = $150 per month

Let's take a look at his schedule.  If you wanted to take that trip a year from now, you would divide $4,500 by 12 and save that amount each month, approximately $200.  If that $200 is going to sabotage your regular monthly budget, you have three options: you can cut your travel budget, you can work on extra jobs, or you can extend the amount of time you'll save.  For example, if you decide you want to take your trip in 18 months, you'll need to set aside about $150 per month.

Look, you can take that trip you've always dreamed of!  It just takes patience and concentration.  Will you be able to travel the world in the blink of an eye?  No, but 99% of the population can't.  The media and credit card companies make it seem like everyone can!  They make you worry about losing money, so you get that plastic card and slave to debt.  Don't fall for them!

What if you want to save for a wedding?  or a motorcycle?  Or add to your house?  Follow the same principles.  Calculate your cost and divide that amount by the number of months you have until the purchase.  The process is easy.  (It's hard to be patient with this.)

Don't Touch Your Retirement Savings

Once you start saving for retirement, you'll be tempted to withdraw money from your investments to pay for the big things.  Let's look at another example: Alex's story.  When he was just starting his career, he opened his 401(k) because his boss told him it was important.  Over time, he accumulated some money in this account.  The years passed quickly.  He and his wife were moving in and decided they really needed some furniture for our new home.  They didn't have enough cash for such a big expense, so Alex went to the one place he knew he could get some quick cash: a 401(k).  Oh!

He withdrew $20,000 from that account, which soon turned into $10,000 after paying penalties and taxes.  So, he basically threw away $10,000 to use the other $10,000.  If he had left just that $20,000 until age 65, he would have grown to more than $560,000.  And now, he probably doesn't even remember what that furniture looked like!

The lesson: Leave your investments alone until it's time to retire.  If you withdraw money before that time, he will not only be subject to huge taxes and penalties, but he will also be stealing money that he may need in the future.

Keep savings separate from checking account

People often ask a question: Where do I put the money I save?  Big question.  For your emergency fund, we recommend opening a simple money market account that offers basic benefits like writing checks and accessing ATMs.  No, this type of account won't pay a lot of interest, but that's okay.  You are looking for easy access to emergency money.  If you have the money on a CD (certificate of deposit), you may have to wait a few days for the cash, paperwork, and all that junk.  In addition, you will have to pay a fee to cash the CD ahead of time.

We hope this article has helped you understand what you need to do to have some money in the bank.  In short, the only way to build wealth is to spend less than you earn and save or invest the rest for the future.  We've created a free investment and retirement calculator to help you determine how much you need to invest each month to have enough for your golden years.

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