1. Cash for liquidity and to pay expenses.2. Emergency fund, for those times when the unexpected happen. If you have money set aside for the emergency, then you may not have to use credit to cover the unexpected expense.3. Funds for accumulating to pay for a vacation, college savings, down payment on a home, a new car, etc.4. Retirement savings. This “bucket” of money will need to be enough to support you through retirement, possible 20+ years of retirement.
Just like any other house, your financial house should have a strong foundation. In my mind, that foundation is protection: life insurance, disability insurance, property and casualty insurance, long term care insurance and estate planning. All of these help protect your loved ones if something were to happen to you.
Once you understand your different “buckets” of money, you can build your financial plan of action for financial security.
1. Identifying and prioritizing your goals, both short term and long term, and your values.2. Analyzing your current situation, you cannot plan without understanding where you are now.3. Develop a plan of action, or solution.4. Implement, and this could be several steps or a few.5. Periodically review the plan and adjust as needed.