Managing Debt While Building An Emergency Fund And Good Credit: The Personal Finance Fundamentals

Most adults will have to deal with several major personal finance headaches over the course of their lives. Managing debt and building an emergency fund can be tough enough, but it’s also hard to figure out which bank offers the best deals for its consumers. Beyond that, it’s also important to juggle the responsibilities of maintaining a good credit score and finding the best insurance deals for you and your family. That’s why, in this article, I’m covering all of these big financial headaches and helping you prepare for what you’ll have to deal with regularly throughout your life!

Debt Is A Nightmare

Everyone realizes how damaging debt can be, even if they aren’t responsibly trying to eliminate their own. Imagine if all your loans were paid off – that’d be at least a few hundred dollars per month you could save or invest, perhaps even thousands. Having no debt can offer more financial freedom than most people will ever have.

The Saving Grace Is That Debt Is Manageable

Fortunately for all of us, debt is manageable if you work hard and stay disciplined. It can take some time to get into the swing of things, but it’s possible to eliminate your existing debt and prevent having to take more on in the future!

The Good Vs Bad Debt Debate

I’m sure we’ve all heard about the debate regarding good debt and bad debt before. It can be tiresome, and it often falls into semantics. However, I think it’s important to discuss the difference when you’re first learning how to manage debt. Generally, it’s safe to say you should avoid debt – but there are also ways to use debt to help (more than hurt) you. Let’s talk about the stereotypical uses for debt, which are bad, as well as ways debt can actually help you out. With this topic there are a lot of grey areas, but we’ll go over that too!

“Good” Debt

Usually when people talk about good debt they’re focusing on debt that you use to make yourself more money. Another use is when that debt actually saves you more in the long run. That can sound a bit weird at first, but let’s focus on the practical use cases for this. By focusing on the actual cases where debt can be used to your advantage, this concept of good and bad debt will be easier to grasp.

“Good” Debt Examples

Education

First off, many people consider pursuing a higher education a worthwhile investment. In fact, most people go into significant debt for their college degree. Unfortunately, I can’t tell you if college is worth it for you. The reality is that if you need a degree for your chosen profession, then you may need to get student loans to pay for it. In this case, you’re using debt to catapult your earning potential. This has a solid success rate in STEM fields, however there are many degrees that don’t have a good return on your investment. When choosing a degree, just remember to be cautious!

A Business

Another good opportunity is building your own business. Sometimes, when you start a business, you have to take out a loan. If you can find a way to avoid this, that is probably for the best. However, I understand that isn’t always the case. So, if you need a loan for your business, that could be considered good debt. It’s another way to leverage debt to catapult your earning potential – and freedom. At the end of the day, there is a certain satisfaction that comes with being your own boss.

Housing

Housing is a bit of a different one. We all know rent can cost a lot, especially with increasing prices. In many areas of the country, it is cheaper to buy than it is to rent. This is particularly true if you plan on staying in the area for at least a few years. So, buying a house can add a lot of debt, but the interest rates are generally manageable, you can make money from it (due to the house’s increasing value), and you have a lower monthly housing expense. All-in-all, that’s not a bad use of debt either. Ultimately it just depends on the exact circumstances and the current market.

“Bad” Debt

Bad debt is mostly what I talk about – specifically how to get rid of it. It’s debt that is not advantageous at all, and it’s just a drain on your finances. This is what most people think of when it comes to debt, and it’s definitely something to avoid at all costs. Personally, I try to avoid all forms of debt that don’t offer something in return (like an investment on a house does).

“Bad” Debt Examples

Credit Cards

One classic example is credit card debt. Consumer debt is a nasty thing, and the interest rates can be astronomical. If you find yourself in a lot of credit card debt, it can feel like it’s impossible to escape it. To be frank, it is quite difficult – even when you follow good, consistent strategies.

However, credit cards aren’t all bad. They can be a good way to ramp your credit score up in a relatively easy way. So, use them responsibly and they can be a great financial tool. If you have a hard time controlling your spending, stay far away from credit cards. It’s simply not worth the risk or the massive amount of debt. After all, do you really need to go into debt for shopping sprees? Here’s a hint – you don’t.

Cars

Another common example is cars. They’re a drain on your finances and they generally plummet in value. I have heard of people getting exceptionally low interest rates on their car loans (under .5%), in which case it’s not so bad – at least not as bad as credit card debt. Either way, it’s certainly not a good thing to have. As a general rule, you don’t want to take on more debt than you have to. In my opinion, unless you’re a car fanatic, you are better served by just buying a used vehicle.

Most Other Forms Of Debt

This is a bit of a catchall statement, but most other forms of debt fall under the “bad” category. When in doubt, just avoid taking on additional debt. If it isn’t clearly a good financial decision, then it probably doesn’t warrant the risk that comes with debt. For those who want to mitigate the risk, take the time to build up your emergency fund. Emergency funds can help give you a breather – everyone needs a safety net.

Grey Areas

Of course, as I said earlier, there are some grey areas that are not entirely bad – but they come with some extra risk. I’ll go over them now, but know that you’ll likely need assistance to make these successful if you don’t already have extensive knowledge about the subject.

Grey Area Examples

Debt Consolidation

First up is debt consolidation. There are tons of services out there that can help you with this. The main benefit of debt consolidation is that it lowers your interest rates and makes it more manageable to pay back. Think of it this way – instead of having multiple loans with different lenders, you can work with another company that pays off all those loans and sets up a new loan with you, with a new interest rate. This is nice since it can consolidate debt from multiple sources. The best thing about it is the fact that you have the potential to lower your interest rate – in effect lowering how much you’ll have to pay to eliminate the debt.

Debt Related To Investing

Another grey area is using leverage for your investments by going into debt. Let’s go back to the generic housing example – but let’s assume you’re a real estate investor. As part of being an investor, you don’t plan on living in the house yourself. You may be buying investment properties using large down payments, but you are probably going into significant debt in order to purchase those properties. Assuming you can’t buy the property with cash, you’ll definitely need to take on some debt. In this case you are taking on debt, and the risks, but also using it to potentially make a lot of money in the process.

Continuing with the example, let’s say you put $10,000 down on a $100,000 house. Excuse the numbers, this is just to make the point clear and the math simple. If the property value increases and you sell the house a year later at $120,000, your initial investment actually increased to 300% of what it originally was! If you’re confused about it, let me clarify. You used $10,000 to get the house, but you pulled a total of $30,000 at the end. That $30,000 comes from your initial down payment plus the increase in the house’s value. While $90,000 is a lot of debt to take on, in the case of real estate it can be lucrative.

Don’t take the example too seriously, as it was just to showcase my point, but leverage does have its uses for investors!

It Ultimately Comes Down To Circumstance

The whole good and bad debate is a little over the top for me. It can be hard to classify them – especially because it depends on your situation. As a general rule of thumb, again, it’s best to avoid debt. All debt carries with it risk, just to varying degrees. If you have an opportunity where you can make or save money using debt, that is fine and is normal. The issue with leveraging debt in such a way is that you have to manage the risk that comes with it. I’m not saying that you shouldn’t do it – just be wary and research your options before you commit.

How Do You Get Rid Of Debt?

There are many effective ways to tackle debt, but my two favorite methods are the debt snowball and the debt avalanche. Let’s break each method down.

Debt Snowball

The debt snowball is a strategy used to rapidly eat away your loans, from the smallest to the largest, which helps you gain momentum towards eliminating all of your debt. When the debt on the smallest loan is paid off in full, you then use the money you were putting towards that onto the second smallest loan and so on. It’s similar to rolling a snowball down a slope.

If this sounds complicated, don’t worry. You only really need to do a few things:

1. List your loans from smallest to largest. For now, ignore the interest rates on the loans but don’t include your mortgage.
2. Make minimum payments on all loans.
3. Figure out how much extra you can set aside each month towards your smallest loan and pay it. This will accelerate how quickly you can eliminate that source of debt.
4. When that loan is paid off, put all the money you were using on that loan towards the next smallest loan.
5. Repeat until you’re left with just your mortgage. From there you can tackle your mortgage as you see fit.

How It Works

The reason the debt snowball works is because it is more about the psychology behind paying off debt, rather than financial aptitude.

If you start paying towards your highest interest rate loan, which is likely to be your largest or second largest loan, you won’t see results for many months or years. You may know the balance is going down, but it’s easy to lose the drive to work on debt when you aren’t eliminating accounts in a timely manner. Plus, if you give up before you finish that one, you won’t take care of all the other debt you have under your belt.

If you focus on the smaller loans first, you will see real results much faster. That will only push you harder towards your goals. It really helps you stay consistent – the real trick behind debt elimination and financial freedom.

With all the smaller loans paid off, and the money from those payments going towards the larger loans, a snowball of sorts has been created and you’ll be able to pay several hundreds of dollars (or more) extra towards your largest debts by the end. Remember, it’s all about consistency. Patting yourself on the back after you’ve eliminated one or two loans won’t help you get rid of the larger debts if you quit there.

Debt Avalanche

If you take the time to calculate it, you may find that paying off loans with the highest interest rate first will save you the most money. However, that is only true if you can keep yourself consistent and accountable for paying everything off. It is better to take the smaller wins at first if that helps you stay focused and driven to pay off the rest of your debt. The debt avalanche strategy has different priorities than the debt snowball method. The debt avalanche tackles high-interest loans first. It doesn’t provide small victories initially, but your first victories will be massive, like an avalanche or landslide.

The debt avalanche method is relatively similar to the debt snowball, but it has a few key differences. Here are the steps to the avalanche method:

1. List your loans from the highest interest rate to the lowest. Ignore overall loan size and your mortgage for this.
2. Make minimum payments on all of your loans.
3. Figure out how much extra you can set aside each month towards your highest interest rate loan and pay it.
4. When that loan is paid off, put all the money you were using on that towards the loan with the next highest interest rate.
5. Repeat the process until your only loan is your mortgage.

It’s Important To Balance Saving Money With Debt Management

Paying off debt and saving money are actually fairly simple, but unfortunately they’re not always easy. Doing both at the same time makes it even harder. Clearly, if you have a low income, doing both at the same time is nigh impossible, so you may have to focus on building a miniature emergency fund first. That seems out of order to some, but it helps out in the long run.

Personally, if I were starting from scratch and had a large amount of debt, I’d start by saving up a very small emergency fund. Now, since I’d be working with a lot of debt and no actual cash, this small emergency fund would essentially just be a buffer to save me from unexpected expenses and potentially having to take on more debt. A lot of people recommend saving about $1,000 for this small emergency fund, which is acceptable. If you want a little more cushion, then the equivalent of one month worth of expenses would be even better.

I also suggest you put this emergency fund in a high-yield savings account so that you do have easy access to it, but it is also making more interest than a standard checking account. A lot of online banks have great options for saving accounts that function well as an emergency fund. If you already have a bank with great options for savings accounts, it’s always nice to be able to keep it all in one place for easy management too.

If you have a lot of issues spending less than you make, you need to start a budget as soon as possible. I’d hope it would go without saying, but there is no real way for you to pay off debt or save if you are spending more than you’re making. Additionally, even if you aren’t spending more than you make, making a basic budget may help you get your finances on track. Not only can it help you monitor your expenses, but it can help you find places where you can easily cut excess spending. Use a good budget to help you pay off debt and build an emergency fund!

Your Emergency Fund

The average American has little-to-no money set aside for emergencies and rarely has enough for the serious expenses that tend to crop up. Most people recommend having an amount equivalent to 1-3 months of expenses saved up for emergencies, but I’d suggest saving around 6 months worth of expenses for the average household’s emergency fund. You may need even more than 6 months worth of expenses depending on the specifics of your situation!

Your emergency fund serves to help you if any disasters or unexpected events occur. Emergency funds can save you from having to take on extra debt or from potentially crippling your finances. These types of events and disasters could be a million different things – an appliance breaks, you need to fix your car or house, you get fined, or even something like losing your job. If you work in an exceptionally volatile field, you may want to save anywhere between 8 and 18 months of expenses.

There isn’t a one-size-fits-all rule for emergency funds, but it’s best to play it a little safe here. Be honest with yourself about how high-risk you are for major unforeseeable expenses. If you’re high-risk and you don’t have much job security, you’ll definitely want to save more.

It Can Save You From More Debt

Instead of having to go into devastating debt every single time something goes awry, you can stave off debt by paying with money from your emergency fund. Of course, in order to keep this up you should include consistent reimbursements for your emergency fund in your budget so that you can keep it topped-off.

For example, let’s say you have to spend $1000 on a home repair after a serious storm. Instead of going in debt for that, you’d use cash from your emergency fund. However, now your savings would be lower than you’d like. In order to build it back up again you might decide to take $100 out of each paycheck until your emergency fund is at your preferred amount again.

Personally, I budget a fairly small amount to go towards my emergency fund every month. Usually this keeps me sitting just over my “goal” emergency fund amount. However, if there is a major event or unexpected expense, I’ll be sure to budget in more money for my emergency fund until it’s close to where it needs to be again.

Emergency Funds Let You Take On Risk For More Opportunities

Having the emergency fund to fall back on may let you pursue opportunities you would’ve never had otherwise. For example, you could take some riskier investments in individual stocks or crypto. If you lose the money, you could still fall back on the emergency fund, but the payout could be immensely better than what a lower risk investment might be. Of course, not all investments necessarily have a chance for a higher return just because they are higher risk!

Honestly, just having the emergency fund to help you avoid debt may be the only push you needed in order to have the financial freedom to start investing. If that sounds like you, I suggest keeping it simple at first and testing the waters before you start doing any complicated investing.

Alternatively, it could give you the opportunity to take time off work to learn a new trade and get started on a new career path. I haven’t had an interest in changing my careers, but I know people who have and they almost always had a large nest egg before they started.

It Is Just A Nice Safety net

During their lifetimes, there are few things people fret over more than their finances. When those finances are in disarray and under assault by several unexpected expenses it can be an incredibly stressful time for anyone – which is part of what an emergency fund is for. Yes, you still won’t like having to spend that money, but it gives you room to breathe and it lets you take time to recover.

Building An Emergency Fund Is Simple

Fortunately, the actual logistics behind building an emergency fund are straightforward.

Decide Where You’ll Store It

This should be simple and straightforward, but it’s definitely something to think about for a bit. Remember, for this emergency fund to be viable you need quick access to your cash in its entirety. Don’t store your emergency fund in a retirement account where you’ll have penalties if you withdraw! I recommend putting it in a high-interest savings account, perhaps with an online bank as I mentioned earlier.

You should be able to withdraw or transfer funds fairly easily and having it in an account with a higher than average interest rate is definitely ideal. If that sounds like the route you want to go, I’d suggest Axos – they have a great high-yield savings account that is perfect for emergency funds.

Unfortunately, this money won’t be invested (and making those hefty long-term returns), and so it won’t be able to keep up with inflation. Some people suggest putting half of your emergency fund in a savings account and half in CDs to mitigate the damage inflation does over time. I generally wouldn’t recommend this way, as CDs have not had the best rates in the past several years – it will still likely lose to inflation and it will make some of your money inaccessible (unless you accept the penalties) for a set period of time.

Emergency funds, in my opinion, should always err on the side of caution and accessibility. Use your investments to take risks and build wealth – emergency funds should be kept safe!

Brick & Mortar

For checking accounts, people often want to go with a brick and mortar bank that has a location near them. This way you can visit the location if you need to, get in-person service, and have easier access to large withdrawals. In my experience, the difference in interest rates between the checking accounts brick and mortar banks offer and the ones offered by online banks are usually negligible.

For a lot of people, brick and mortar banks will always win the convenience factor when it comes to checking accounts. However, brick and mortar banks are rarely ever able to compete with the interest rates of online savings accounts. Personally, I have multiple checking accounts – brick and mortar as well as online – and one high-yield savings account.

The Steps To Building An Emergency Fund

Again, if you’re struggling with an emergency fund, keep it simple and start with baby steps.

1. Save at least $1,000.
2. Save at least 1 month worth of expenses.
3. Start building up to 6 months worth of expenses.
4. Expand your emergency fund as needed.

Make Reimbursements Automatic

As I mentioned earlier, you want to reimburse your emergency fund regularly to keep it where you want it. The best way to do that, in my opinion, is to have some of your monthly income automatically sent to the account where you store the emergency fund. Keeping it simple and painless for you is the best way to make sure you stay consistent. Most banks will have a fairly straightforward automatic deposit feature you can use to dole out savings every payday. Take advantage of it, automation makes your life much easier!

Debt Management And Emergency Funds Aren’t The Only Concern

Your emergency fund isn’t everything and neither is your debt. It’s also important to cover some other aspects of your financial foundation. Specifically, building your credit score and learning about insurance policies are a must!

Building Your Credit Score

Credit scores can seem like a complicated topic for many, but I’d like to eliminate some of the confusion surrounding them. Your credit score isn’t as complex as you probably assume it is, and there are tons of ticks and trips you can use to build yours up.

Credit scores can impact just about every aspect of your personal finances. A good score is great and makes life a lot easier. For example, a good credit score makes it easier to rent a house or apartment, buy a car, get a mortgage, and so on. Whether you’re a young adult who is trying to get started, have average credit, or have some issues in your credit history, there are many ways to work on improving your score!

Maintaining Good Insurance

Most people have to deal with insurance constantly – either by making claims or finding a new policy. Insurance can sound a little complicated at first and may be intimidating, but if you know some general concepts and what to look for with the different types, it should be easy to find policies that suit you.

Credit Scores Are Important

As I alluded to earlier, a good credit score makes it much easier to get approved even if you’re trying to rent a house. Good scores also give you better interest rates for different loans, like your mortgage or consumer debt. On top of that, many services give you access to better options when you have a good credit score – like credit cards, for example. Access to the top rewards (cash back, travel perks, points, etc.) are heavily dependent on your score.

In short, a good credit score makes it far easier to get loans in general, get good interest rates on those loans, and it gives you access to nifty perks. On top of that, building a good credit score is fairly easy and simply rewards behaviors that you should want to do anyway.

What Is A Good Credit Score?

Credit scores can be any number between 300 and 850. There are various systems for scoring credit, but in this article I’m going to focus on FICO since that seems to be the most common and “standard” system in my experience.

Another good thing to know is that different credit bureaus might have somewhat different scores, which happens because they may have access to slightly different credit history information. If you live in the USA, you’ve likely heard of TransUnion, Equifax, and Experian – the 3 major credit bureaus.

The consensus is the following:

• <580 is poor
• 580-669 is fair
• 670-739 is good
• 740-799 is very good
• 800+ is exceptional

How Credit Scores Are Calculated

Again, for the purposes of this article, I’m going to be focusing on FICO scores since that is the most popular one.

The following are the primary ways your score will be calculated:

• Your payment history is responsible for 35% of your score. This is mostly about making payments on time.
• The total amount you owe counts for 30% of your score. That means using less of your available credit is better for your score. In other words, don’t max out your credit cards!
• The overall length of your credit history is about 15% of your score. The longer your credit history, the better your score will be.
• New credit counts for 10% of your score, which is basically just how many accounts you’ve opened recently. Opening tons of accounts in a relatively short period can be seen as a high-risk behavior by credit bureaus.
• Lastly, credit mix is another 10% of the FICO score. This generally means that they like to see you have a mix of different types of credit. For example, having a credit card and a mortgage MAY be seen as better than just having two credit cards

The Best Ways To Check Your Credit Score

Don’t worry, checking your credit score shouldn’t hurt it as long as you do a soft check. Many credit card companies and some banks offer ways for customers to check their scores easily. If you don’t have access to that, or want another source for your credit score, I highly recommend using myFICO to check and monitor it.

Tips For Improving Your Credit Score

If you have no history, it won’t happen immediately. You need to show consistent low-risk behavior (i.e. responsible behavior) throughout your credit history. The easiest way to start is by paying all bills on time and limiting the total amount of credit you’re using. It should also be easy to find credit cards specifically for students or those with low credit scores to help them boost their credit.

It’s important to remember a few key tips:

• Use as little of your available credit as possible.
• Pay all of your bills on time.
• Don’t keep a balance on credit cards. In other words, pay it off completely each month.
• Don’t open too many accounts at once.
• Avoid tons of hard inquiries. Hard credit checks occur most often when you get preapproved for a new loan. If you don’t open too many accounts in a short period, this is easy to handle.
• If you’re young or have a limited credit history, avoid closing your older accounts if possible.
• Bankruptcy should always be a last resort. It can actually help you out of a bad situation in some cases. However, it will hit your credit score incredibly hard.
• Like bankruptcy, foreclosures will destroy your good credit. It’s definitely something to avoid.

Insurance Is A Pain, But We Need It

I know that insurance can be hard to deal with. Frankly, it’s absolutely frustrating most of the time. However, when you truly need it you’ll be glad you went through the headache of finding the right policy ahead of time.

Insurance Terms

Let’s go over some of the fundamental insurance terminology you’ll see.

Premium

Your premium is the amount you pay to your insurance agency to have them continue to provide coverage. The payments are usually monthly, biannual, or annual. The amount is generally determined by calculating the risk required to insure you. The insurance company may even take a close look at the details of your personal situation. At the end of the day, the insurance company is trying to make some sort of profit. That means if you’re higher risk, your insurance premiums will likely also be higher. Additionally, if you purchase more coverage, the premium will go up.

Lowing your premium

The method to lower your premium varies wildly. Fortunately, there are some general options you can look into.

• Reduce your coverage. For example, reducing auto insurance from covering collisions or reducing the total maximum it can cover will also reduce your premiums. However, this is not necessarily a good idea. Sometimes it is worth it to pay a higher premium.
• Increase your deductibles. Your deductible is the amount you pay out of pocket. That will decrease your premium, but it will increase the amount you have to pay if any incident occurs. Again, this may be useful at times, but it can also backfire.
• Look into credits or ways to waive fees. For example, many health insurance and life insurance companies will lower your premiums if you complete something like a tobacco cessation course. Of course, if you struggle with anything like that, it’s always a good idea to look into finding ways to manage it better.
• Shop around for insurance providers. If your insurer isn’t meeting your expectations, do some price comparisons to make sure you’re getting a good deal. If you need to, don’t be afraid of switching providers.

Limits

An insurance agency’s limit is the maximum amount they will pay for a given policy. Usually, the more expensive the premium, the higher the limit. Depending on the type of insurance, the limit may be based on each incident or in total. For example, a car insurance policy could have a $100,000 limit per accident. To keep it simple, just remember that a deductible is how much you pay, and the insurance limit is the opposite (i.e. the max that the insurer pays).

Potentially Worthwhile Insurance

Not all types of insurance are equal or even mandatory, but there are several worth considering. Many of these examples I’m covering will be mandatory for most people, or at least highly encouraged. Some of them just depend on your individual needs!

Medical

Health insurance, per the name, is used to help cover your medical expenses and needs. This includes the medical expenses after an injury or during an illness, as well as preventative care (e.g. physicals, routine visits). Health insurance is usually a large expense, especially for those who are retired. At the same time, health insurance is often worthwhile. An accident could cause a serious injury that might lead to insurmountable debt without insurance. If you don’t have it, seriously consider enrolling in a health insurance policy.

There Are Several Useful Things To Know About Health Insurance

• If you’re a college student, you can generally stay on one of your parents’ plans into your mid-20’s.
• COBRA helps people who lost health insurance benefits keep them for a limited period if they meet a given requirement. Examples include losing a job (voluntary or otherwise), having their hours reduced at work, transitioning between jobs, death, divorce, and several other major life events.
• If you’re a veteran in need of health insurance, check out this site.
• If you are in a low-income household, look into Medicaid as an option.
• For those 65 or older, check out Medicare. It provides a lot of coverage at a cheap cost – making it perfect for retired individuals or couples. Of course, if you retired early, you’ll have to find a different source of health insurance.
• If you and your spouse have insurance plans from your employer, it may be cheaper to keep the policies separate until you have a family. In other words, always verify your current and potential options before making a change.
• Look at the health insurance marketplace. You might be surprised at the options there!
• If you can’t waive the additional fees, tobacco use can cause a HUGE increase in your premiums.

Like other forms of insurance, premiums and deductibles work much the same. However, it also has copays, coinsurance, and out-of-pocket maximums. A copay is a precise amount you pay for certain services. For example, you may have to pay $20 for a routine visit or $30 for prescription medication (these numbers are just examples). Coinsurance is similar to a copay, but coinsurance is a percentage (like 20% of a bill) instead of a flat rate. Your out-of-pocket maximum is the most you’ll have to pay in a given year. Most payments count towards your out-of-pocket maximum, except for your premiums.

Dental & Vision

Subcategories of health insurance in a manner of speaking, dental and vision are usually covered under separate insurance policies. They are usually cheap and worth the price, in my opinion. I certainly recommend everyone with teeth get dental insurance! If you have perfect vision, you may decide vision insurance isn’t for you. However, it doesn’t hurt to do regular check-ups every few years, especially if you look at a computer screen most of the day.

Life

Having a life insurance policy is a way to make sure your beneficiaries get a lump sum of cash in case of your untimely demise. Of course, you have to pay monthly premiums for this, which may increase with your overall risk. Remember, the insurance agency is a business that is trying to make money. Make sure you are as open and honest with the agency as possible. It may cause higher premiums, but it will make sure the agency doesn’t have a way of backing out from sending the payment to your beneficiaries.

Term life insurance is a policy that ends or expires after a set period of time, often decades. Other life insurance policies typically end when the insured individual dies. In either case, the customer (that’s you) can end the policy or stop making payments. If payments are missed or stopped entirely, that may void the policy. Not everyone needs life insurance, but if you have children or dependents make sure you consider it.

It’s hard to recommend an amount of life insurance to buy, as it is always case-by-case. Make sure you factor in the living expenses of your loved ones as well as the cost of anything you may be responsible for – like any outstanding debt. As with everything else, make sure you review your life insurance policy after major life events occur like a birth or marriage.

One common option to consider is getting term life insurance for as long as you think you’ll be providing for your family. That is usually a term of 20-30 years. That way, if your death is premature, your family is still taken care of. Also, locking in term life insurance while you’re still young can help you get great premiums! Once the term expires, you’d then need to rely on wealth you’ve amassed over your lifetime to provide for your family after death. Alternatively, you’d need to purchase another life insurance policy – which would likely be incredibly expensive at that point.

Term life insurance policies are cheaper the younger you are when you purchase them. Many people prefer buying them when they’re 28-32 years old. This makes them old enough to have a family they’re responsible for, but young enough to still get better rates.

Auto

Car insurance is not something to skip or the time to opt for the cheap option. It is better for it to be a little expensive than for you to not have it if an accident does occur and you desperately need it. If you ever get into an accident that is your fault, car insurance can save you from potential financial ruin.

Liability coverage is for injury as well as property damage. Good coverage on it can save you from nasty lawsuits. To be clear, liability coverage is for someone’s expenses if you’re found to be at fault in an accident. Almost every state requires it to some degree. Make sure this covers enough in an absolute worst case scenario.

For the other parts of your policy, you’ll need to determine what you actually need in your specific case. For example, do you want to cover rentals or towing? Do you need collision coverage (in other words, is your car worth more or less than the deductible would be anyway)? These are all good questions to consider!

Again, car insurance is definitely worth making sure you’re covered well on, even if it costs a little bit more. Shop around with various agencies, but don’t settle or cut corners.

Homeowners

In my opinion, homeowners insurance is pretty straightforward. Policies usually have a detailed, itemized list of everything that will be covered, and different things you can opt in to have covered (for an additional fee). Make sure this policy has an accurate rebuild cost as well as appropriate coverage for weather in your area. Additionally, it likely covers personal injury that occurs at your home and provides coverage for different kinds of property you store at home.

Go through the policy, make sure you have everything you need, and compare prices to ensure you get the best deal!

Decide What You Need

Insurance can be expensive, painful to deal with, and hard to understand – but it’s necessary. At the end of the day, insurance agencies will charge you more if they think you’re a higher risk, and less if you’re at a lower risk. Shop around for the best prices, and make sure you get the coverage you need for unexpected events and disasters. It’s ultimately up to you to find the best deal that also meets your requirements. Take the time to do the research and you’ll thank yourself later!

Conclusion

Hopefully this article gave you the fundamentals you need to start taking care of your debt management, emergency fund, credit score, and insurance needs. If you have any questions, or want to share some tips, be sure to leave a comment.

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