5 Tools to Prevent Financial Disaster

[00:01] about money? Wondering if you've really saved enough, worried that you might need to buy a new car soon, or afraid you won't be able to help pay for your kids college? You're not the only one. According to a 2024 Discover survey, 80%

[00:14] of Americans have some level of financial anxiety. And more than a third of those describe it as moderate to severe. Now, I know some financial stress is unavoidable, but a big part of financial anxiety, the kind that keeps

[00:28] people up at night, comes from simply being unprepared and unprotected. And that's completely fixable. Today, we'll walk through five financial tools that can help protect you from financial disaster and give you peace of mind.

[00:41] When you have all five in place, it can totally change how you feel about money bit better at night. The first tool is foundational. And it's the one that protects you from the most situations.

[00:54] In fact, it's so important, we include it in the financial order of operations as step four, and arguably step one as well. I'm talking about emergency fund. This is a vital part of wealth building because it gives you a buffer between

[01:07] your army of dollar bills and whatever life throws at you. You lose your job, your tundra breaks down, your ferret needs surgery on his gallbladder. Without an emergency fund, any one of those events can become a financial

[01:20] crisis. And a crisis can lead to debt, which can lead to months or even years of stress. And the data on this is pretty alarming. One survey found that 42% of Americans have no emergency fund at all. It's no wonder people are

[01:34] stressed out about money. Following the financial order of operations before building a full emergency fund, you should first cover your highest insurance deductible, which in a way is like a starter emergency fund. Next, you

[01:47] should invest enough to get your full employer match in your retirement account, and then pay off all your high interest debt. Once you've knocked out those steps, it's time to build your full funded emergency fund. We recommend

[02:00] having 3 to 6 months of living expenses in a high yield savings account that's liquid, easy to access, and not mixed in with your regular spending money. And if you're a single income household or you have inconsistent income, lean toward

[02:14] that 6-month end of the range. Once you have a full emergency fund in place, you'll be prepared for even a major unexpected expense. And I'm willing to bet you'll worry about money a whole lot less. Tool

[02:28] number two might actually surprise you because it's not typically associated with reducing risk. But these accounts, by their very nature, are the best tool for making sure your future self is financially prepared. I'm talking about

[02:42] your retirement accounts like your 401(k)s, your 403(b)s, and even your Roth IRAs. These accounts are the primary way most Americans build wealth because they let you take advantage of compounding growth and come with tax

[02:55] benefits. That's why we tell folks to start investing as early as possible. Early and often is what we say. Our benchmark is 25% of your gross income saved and invested, but you're just not there yet, that's a-okay. Just start

[03:10] with something, even if it's a small amount, and you can rest easier knowing you've got an army of dollars working for you. Now, I want to be clear. The reason retirement accounts can help protect you is not because you can use

[03:24] them to pay for emergencies. Yes, it is possible to take out a 401(k) loan to pay for an unexpected large expense, but that is a very dangerous move. Let's say you take out a $10,000 401(k) loan to pay for a kitchen remodel. Not only do

[03:39] you have to pay that $10,000 back with interest, but you also have to consider the opportunity cost of not having those dollars invested and working for you. You've taken $10,000 from your soldiers, from your army of dollar bills, and put

[03:54] them on the sidelines. So, the true cost of a $10,000 401k loan is way more than $10,000. It might seem like a good move at the moment and at the time, but you actually just dug a hole that you've now got to get yourself out of before you

[04:09] can get back to building wealth. And that might lead to even more anxiety. So, avoid going that route. And remember, even if you know you're not going to touch that money until retirement, just knowing it's there and

[04:22] growing is one of the most powerful stress reducers in personal finance. Tool number three. This is one that many people don't think much about until the moment they desperately need it. And that is insurance. Paying premiums every

[04:37] never use can feel like a waste, but believe me, it's not. Insurance is the tool that protects everything else you've built. Without the right coverage, one bad event, like an illness, a car accident, a house

[04:51] fire, or even a premature death, can wipe out years of wealth building in an instant. So, don't sleep on this one. Make sure you have the right coverage. And if you're wondering what that is, it depends on your specific situation. For

[05:03] example, life insurance isn't necessary for everyone, but if you have financial dependents, like a spouse or children, term life insurance is a great tool for making sure your family is covered in case something should happen to you.

[05:17] Other types of insurance are for almost everyone, like homeowners or renters insurance, auto insurance, or even health insurance. Umbrella insurance may significant amount of assets. And by the way, if you live close to a body of

[05:31] water that's prone to flooding, flood insurance may be a good idea. If you're disability that would prevent you from earning the same wages, you might need disability insurance. If you want to

[05:43] know exactly what type of insurance you need or don't need, check out this article at money guy.com. We'll drop a link in the description. Bottom line is, having the right insurance coverage means that when the unexpected happens,

[05:56] it doesn't have to be a financial catastrophe. And that peace of mind is worth every dollar of the premiums you pay. The next tool to protect you from financial disaster is something most Americans don't have. And that is a

[06:09] Americans don't have. And that is a financial plan. Only 31% of US households have a long-term financial plan in 2025. And without a plan, even most people who are doing well financially can feel anxious because

[06:22] they don't actually know if they're on track. Whether you're a do-it-yourselfer or work with a fee-only financial advisor like the team here at abound wealth, a financial plan can help address your biggest money concerns and

[06:34] even eliminate future money issues before they pop up. It can help you identify and prioritize your financial goals and develop a plan of attack for accomplishing these goals. Without a plan, you're a rudderless ship drifting

[06:48] around the sea. With one, you know exactly where you're headed and know how financial plan is one of the most powerful ways to protect yourself and eliminate money stress. That leads to tool number five. And this is the one

[07:03] most people put off the longest. It can bring you peace of mind if you have it and it can be a disaster if you don't. I'm talking about estate planning documents. According to caring.com's will and estate planning study, only 32%

[07:17] of Americans have a will. Please hear me when I say estate planning is not just for wealthy retirees. If you have a spouse, if you have a child, assets of any kind or opinions about your own health care, you need these documents.

[07:31] Without them, the courts will step in and make decisions for your family and you might have made a very different decision. These are the three major estate planning documents I want you to prioritize. The first one is a will or

[07:45] trust. This directs how your assets will get distributed and more importantly, who cares for your minor children if something should happen to you. The second one is an advanced healthcare directive or living will. This outlines

[07:57] your medical wishes if you're incapacitated or can't speak for yourself. Nobody likes to think about this type of stuff, but this is one of the greatest gifts you can give your family. The third document is a durable

[08:10] power of attorney. This designates someone you trust to make financial and legal decisions on your behalf if you become unable to do so. I know these aren't fun conversations, but getting your estate plan in order is one of the

[08:23] best ways to feel at peace when it comes to your money because you know your family and your assets, they're going to be protected. Unexpected financial events are unavoidable, but being unprepared for them is completely

[08:37] avoidable. Just use the tools you have available to protect yourself from financial disaster. An emergency fund, retirement accounts, the right insurance, a financial plan, and of course, your estate planning documents.

[08:52] glamorous, none of them are going to go viral on social media, but together they form a foundation of financial security that can change how you feel about money. Less anxious, less stressed, and more confident that whatever life throws

[09:07] at you, you can handle it. Even with all five of these in place, you could still end up in a bad spot if you fall for a financial trap that slowly drains your bank account. Check out the video right here to learn about America's top five

[09:22] wealth killers and you too can know how to avoid them. And as always, keep building towards your great big beautiful tomorrow.