The new year is a time for goal-making and reflection. My wife and I look over the past year and determine what has worked and what needs to change in both our personal lives and our financial life. When we look back, though, there are always those events that we never saw coming and seemed out of our control. Some of those events were good, some were bad, but they almost always involved spending money we hadn’t anticipated spending.
For every Bible reference that talks about preparing for your future and making forward-thinking decisions, there seems to be as many about not worrying about your future or leaving it entirely to God. This can be problematic for a Christian. What are we to make of seemingly conflicting instructions?
Making preparations for your future – whether caring for your body, educating your mind, or preparing your finances – does not diminish God’s plans to use your preparedness. And when your plans are changed and you are asked to go in another direction, you will be ready, willing and able. Being financially ready is no different than being physically or mentally ready.
How do we prepare?
An emergency fund is an essential part of being prepared. Think of it like a safeguard that prevents your recent layoff, hospital visit, or car accident from upending your life financially. A 2015 survey by Pew Charitable Trust found that one-third of American households have no savings and 57 percent say they are not prepared for emergencies, while 60 percent reported having had a financial shock over the past year (www.pewtrusts.org). Experiencing a crisis when you have little to no savings destines you for desperation and irrational financial decisions.
In order to effectively maintain an emergency fund, experts recommend setting aside 3-6 months’ worth of spending in a savings account (investor.vanguard.com). The actual dollar amount varies from home to home, but is thousands of dollars more than what the average American currently has in savings (www.gobankingrates.com). Even if you are unable to save 3-6 months of spending cash right away, setting aside something will help you avoid unnecessary debt, improve your peace of mind, and prepare for your future.
Retirement accounts are another crucial way to prepare. The statistics on how well the average American is equipping for his or her retirement are no better than the statistics on emergency funds (www.pewtrusts.org). Even if you plan to work well into your retirement, a retirement account is imperative. Much like an emergency fund, a retirement account works as something to fall back on in case of job loss, injury or sickness.
Retirement accounts come in a number of different forms, which can confuse someone who is not interested in researching them. As with your emergency fund, though, doing something is the key. Knowing the details will help, but only if you are doing something.
It is never too late
It is never too late to prepare for your future. Even if you feel like you have already lost control of your finances, you should start an emergency fund, no matter how small. It is inevitable more emergencies will come your way, and you will be thankful you are prepared. Even if you feel like you are too old to start a retirement account, it is not true. You do not know how long you will live, how long you will have your job, and how long you will have your health.
It is a relatively simple process to open a retirement account, and many workplaces offer incentives for having one. Even if your workplace does not offer a retirement plan, you can create an individual retirement account (IRA) through a number of different investment companies for little to no cost. Some of these include Vanguard (vanguard.com), Fidelity (fidelity.com), Scottrade (scottrade.com), or TD Ameritrade (tdameritrade.com).
Be aware you cannot plan for everything
The new year brings new goals, new plans and new problems. Preparing for these problems is a part of life; it is important to financially prepare for the unknown. At the same time, we must always keep in our minds the knowledge that no matter how much we try, we do not know the future. We must admit the future often sabotages our plans and redirects our courses in ways we never imagined. No matter how much money we put away in our emergency funds or save for our retirements, we must never deceive ourselves: money is not what truly protects us.