Last month we started this series with bucket #1: Financial Protection. Bucket #2 is the Financial Security Bucket.
If you didn’t complete Bucket #1, go back and complete each exercise as it will build on the previous month.
The process will require you to figure out and calculate some monthly expenses, then goals and then dreams later. We will start simple and get deeper as we proceed.
Bucket Two: Financial Security
This bucket requires you to have liquid assets to “protect” your monthly critical obligations. Basically, it means you must have enough cash somewhere so that you can access it quickly (not IRA’s, real estate, etc.).
Last month we calculated what you would need to have stashed away for six months of expenses. After you have put this away somewhere, now simply find what you need to cover these expenses for 1 year (so that you don’t touch the emergency fund).
Calculate the following numbers and find out what you would need in your Financial Security bucket per year. For couples, combine your expenses to figure out your Security bucket amount.
- Mortgage payment per month: _______
- Utilities per month (cable is not a life necessity lol): _______
- Transportation (gas and auto insurance) per month: _______
- Food (average per month): _______
- Insurances (health, disability, house, etc.): _______
- Taxes (property, if you pay this with your mortgage, include above): _______
Add these up and multiple by 12 to get the total amount you should have per year in your Financial Security Bucket. I know we hope that some of these expenses will be gone as you age (mortgages, some insurances, etc.) but for ease of calculation, keep them in there. (Example: Zoran figured his bucket needed $5,000 a month to cover all the critical needs. $5,000 x 12 = $60,000/ year. This is the net income you need yearly to cover these essential needs.)
The goal of financial planning is that, at some point in your life, you have enough investments so that the interest that they produce a year covers your amount of needs.
Action Step for You: Calculate your Financial Security Bucket.
You can read the articles on the other buckets here:
Bucket One: Financial Protection
Bucket Three: Financial Vitality
Bucket Four: Financial Independence
Bucket Five: Financial Freedom
Bucket Six: Absolute Financial Freedom
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