Cover Your Rear

Once you’ve paid off your debt and taken control of your financial life, it’s time to take a deep breath, look at what you have, and take the necessary steps to protect it.

When we are trying to get out of debt, it is forgivable to ignore the “should do’s” until we can get our heads above water. It doesn’t make much sense to save for a new car when you haven’t paid off the one you have.

But once you are back on solid footing, it’s time to cover your rear and make sure you don’t fall back into old habits or get caught reacting instead of acting.

 

Your Family

If you purchased your own home, I’m sure you have household insurance to protect your dwelling and its contents, so you might start to think about protecting your family in case of a natural disaster or emergency. If the power is out for two weeks, your insurance agent isn’t going to stop by to feed you.

Take a hundred bucks or two and go to the grocery store and buy two weeks of food and water for your family. Estimating how much food you may need is easy, but for water it can be trickier. A handy rule of thumb is to have one gallon per person, per day, to cover drinking, cooking and sanitary needs.

 

Your Emergency Fund

I recently talked about having an emergency fund once you are debt free, and how to build the perfect emergency fund.

The one I designed is all-cash and in multiple locations, each a bit harder to reach than the last. My emergency fund also has a good amount of cash in a safety deposit box in a different town. That way if the power goes out in your city, chances are you’ll be able to access your safe deposit box should you deplete the cash you already have in your home.

An emergency fund may not be very helpful in getting you out of debt, but it is useful in keeping you out of debt. Essentially you are borrowing money from yourself instead of a bank.

 

Your Replacement Car Fund

If you are debt free, that means you don’t have a car payment. What it also means is that you need to take steps to protect your car and set some money aside each month to buy a new car. Again, you are creating the Bank of You.

Once you’ve paid off your debts, a new car is basically the most expensive recurring expense you will have for the rest of your life (unless you choose to further your education).

 

 

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9 Comments
  1. Great post! I’d imagine it’s easy to just relax when debt-free so this is a great reminder to not get complacent and make sure you’re prepared so you don’t go back into debt.

  2. The car fund I think is important because they simply don’t last forever. Although I paid cash for my truck and our vehicles are both paid there will come a time we will have to move on to another vehicle. Since we want to pay cash it’s smart to start a savings plan early so you don’t have to go in the hole too much just to get a set of wheels. Mr.CBB

  3. Another good thing to have (if you don’t have room to actually store water) is water purification tablets. You can find them at pretty much any hunting/outdoorsman store and will purify water most of the time in 30 minutes. Or you could do the whole boil your water thing.

  4. Fantastic! One more….disability insurance: literally “cover your rear!”

  5. I would second the need for content insurance. We lived in a building where there was a fire and lost a lot of our possessions due to water and smoke damage from the fire. No content insurance at the time :(

  6. We own both our cars, but since they’re both relatively new (both are ’08s, one has about 55k miles, the other about 38k) we haven’t started saving for a new car yet because (we hope) that’s 5-10 years down the road. We do have our emergency fund for repairs, though (although currently both are still under their original manufacturers’ warranties).

  7. Great post! It is a great feeling when you paid off all your debts and finally take control of your financial life. It is very important to handle your finances wisely to avoid getting back into debt again. I am planning to buy a new car next year. Instead of getting a car loan, I also opted to set some money aside each month and sell my old car to come up with enough money for my new car.

  8. Great post. I always try to keep money saved in case anything goes wrong. You HAVE to have an emergency fund!

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