It may seem strange that after all the “getting ready” of the steps in the Financial Freedom, the first action you take does nothing to change your financial situation.
“It’s not OK when you get sick, or when you die, to leave financial chaos behind you for everyone else to clean up.
These Steps to Financial Freedom are about freedom from worry, freedom from concerns about money.
Knowing that your loved ones will be properly taken care of if the worst happens is a large part of having the peace of mind you need to build real wealth.
Make sure you have a will, including a testamentary trust, adequate life insurance, income protection insurance, and health insurance. If you are not sure what any of these are or how to get them consults a financial planner.
A testamentary trust puts your assets in a trust after you die. Trust can only be used for the benefit of the beneficiaries of your will. Depending on where you live, a testamentary trust will have a different set of rules, procedures, and benefits.
In some cases, a testamentary trust will prevent or reduce the loss of assets to death duties. In other cases, income from a testamentary trust is taxed at a lower rate. Your financial planner will be able to explain how a testamentary trust will benefit the beneficiaries of your will.
Life insurance may seem self-evident, but in fact, there are many different types of life insurance, and you need to select the right type for your situation.
Income protection insurance will pay you an income if you are unable to work for a period of time. As you can imagine, this is a great relief at a time of sickness or injury.
Health insurance can be a surprise. Many people rely on an employer to provide health insurance and assume that if they do not have a job with health benefits then they simply can’t get health cover.
This is not true, and you should research the health insurance that is available privately. Accident and illness is the leading cause of bankruptcy in the US today, and knowing that you are protected against that possibility provides great peace of mind.
Homeowners refinance a mortgage for many reasons. You may refinance a mortgage to lower your monthly mortgage payment or do cash-out refinancing to free up some of the equity in your home for a major purchase. You can also refinance a mortgage as part of a considered debt consolidation strategy.
There are people, though, who refinance a mortgage for all the wrong reasons.
Maybe friends refinance a mortgage and use the cash-out option to buy a new car or boat, or take an overseas vacation. This can look very appealing, but resist the urge to do likewise. A cash-out refinancing increases the balance owing on your mortgage, so if you aren’t refinancing a mortgage as part of an overall financial plan, you can set yourself back many years financially.
You should refinance a mortgage after a long period of considered thought, and after working out exactly what the costs and benefits will be.
You shouldn’t refinance a mortgage just because a well-mannered, nice looking mortgage broker or bank lending manager told you it was a good idea. Those people, lovely as they are, are paid for their ability to persuade you to refinance a mortgage with their organization. They are not paid to give you unbiased advice.
The only person who can really decide whether it is the right time to refinance a mortgage is you, the owner of the property. You must do your homework before deciding to refinance a mortgage, and make your decision based on your own situation and priorities.
You shouldn’t refinance a mortgage in a panic. You will inevitably wind up paying more and getting less benefit than if you take your time and plan to refinance the mortgage sensibly.
If you are getting into trouble with a mortgage, maybe you have missed a payment or you think you might, then it may well be a wise decision to refinance. However, you should still get on the phone with your current lender and negotiate terms, to give yourself time to refinance in the best possible way.
If you have to stretch beyond your financial comfort zone to refinance a mortgage, then you really need to question whether it is a good idea. Your housing should never cost you more than a third of your take-home pay each week.
You may think that you could manage a higher payment, but history has shown that the resulting mortgage stress is damaging to health and relationships, and puts you in a very vulnerable position if your circumstances change at all.