There are some steps you need to take to shield yourself from the uncertainty of tomorrow. For example, a durable POA form could be a financial lifesaver one day. Here are just some of the ways you can keep your belongings safe through a worst-case scenario.
Building an Emergency Fund
Emergency savings will help when you need to weather a storm. If you suddenly lose your job, this gives you time to get back on your feet, for example. Everyone should have a buffer like this, even if they think they’re safe. After all, nobody knows what the future might bring.
Save 3–6 months worth of living expenses at minimum. You can do this by setting up automatic transfers that send part of your income to a savings account. You should also consider putting your tax refund into your savings if you're eligible. Alternatively, use it to help with high-interest debt.
The main way to build up your savings is to manage your cash flow and stay patient. There are, unfortunately, situations where this won’t be enough. But saving where you can today is sure to make tomorrow easier, at the very least. Discipline is at the heart of any long-term savings.
Protecting Your Assets Long-Term
You’ll need to keep your assets safe if you can’t deal with your debt anytime soon. Luckily, there are still a few routes you can take. Here are the four main ways to protect your assets:
Retirement Accounts
Placing your funds in a 401(k) or an IRA will keep them safe in most situations. This guarantees you and your family will be comfortable if your main concern is long-term security. You could still take money out in a pre-retirement emergency — but this usually comes with a penalty.
Trusts
You can similarly put your money in an irrevocable trust. It technically won’t belong to you if you do this, which shields it from creditors. However, this also means you can’t easily withdraw it on a whim. Revocable trusts offer less protection from debtors but will give you more flexibility.
Limited Liability Companies
If it’s your company you’re worrying about, consider making it an LLC. This means you won’t be liable for any debts the firm racks up over time. They can still seize the company’s property, but not your own. This even helps if your business faces any serious losses unrelated to debts.
Medicaid Compliant Annuity
Healthcare costs are a huge burden, even if you can afford it. A Medicaid-compliant annuity will let you forfeit your personal finances to make you eligible for government help. This lessens any worries about health costs — and you’ll still get every cent back over the following months.
How a Financial POA Can Help
You need a plan in case the worst happens. You might enter a coma or otherwise no longer be able to make sound financial decisions. A durable power of attorney guarantees that your loved ones respect your wishes in these situations. This sets out what they can and can’t do with your money.
Choose your ‘agent’ carefully when setting up your power of attorney. Above all else, it has to be someone you trust to manage your finances. They may even be taking over the family business. In any case, they need to know what you would do in the same situations they’ll be facing.
An uncertain future for yourself is also one for your family. Setting up a POA just to be safe may end up being a lifeline for them further down the road. Make sure you keep everyone in the loop about any decision you end up making about your finances.
Planning Your Estate
Going even further, you should also prepare how you’d want to split your assets. This might not feel like a pressing concern, but it’s important nonetheless. Plan your estate to figure out exactly where your belongings will go. This helps you cut down on future family conflicts.
Once again, you can consider special trusts; this will skip the lengthy probate process. Clarify all of your wishes in writing through a will. This is also a chance to appoint a legal guardian in case you have a child.
Review your will and any other long-term plans at least once a year. If something happens in the family that changes how you want to split everything, don’t delay. However, you also shouldn’t rewrite your will in the heat of the moment. Carefully take stock of your own wishes before you make any changes.
Conclusion
You can’t take the future for granted — anything could happen at a moment’s notice. At the very least, you should set up a power of attorney and a will. Make sure you consult with legal experts and use strong templates for each. This guarantees that everything stays legally binding.