A financial emergency is something that can happen at the snap of a finger due to sudden layoff, a life-threatening disease, or even going bankrupt. The truth is, financial emergencies are unpredictable to budget precisely, but by preparation, getting your way out of one can become easier.
In this article, you can get insights on how you can plan for unexpected events.
1. Think of the Unexpected
The best starting point is to think about the worst thing that can happen. This could be a house fire, medical emergencies, the death of a loved one, or damage caused by natural disasters. These things are inevitable and can truly happen any time.
By thinking about the worst things that can happen, you can plot out a plan that will make it easier to cover for the damages and expenses. By this time, you need to create a strategy that would help you in the future. For instance, increasing medical insurance premiums to cover for unexpected medical bills.
2. Create an Emergency Fund
After visualizing the worst things that can happen, the next step is to open a savings account and create an emergency fund. Calculate how much money you can keep and save monthly, then secure this to your savings account. Have a savings goal so that every time your salary comes in, you know how much you need to keep.
The golden rule is to set aside at least 6 months of living expenses to afford daily needs. However, it would be better to keep more money in the bank just to be sure.
3. Live Below Your Means
Practice the habit of spending less than you make so you can save more money from your income. If this means significantly reducing your lifestyle costs, then do so. However, there’s nothing wrong with treating yourself once in a while; still, manage your money well to avoid using your emergency fund. Remember to stick to your plan and reduce your monthly expenses to achieve the goal.
4. Consider Availing of Insurance
Treat insurance as a protection in times of troubles. This isn’t an expense if you can benefit from it during a natural disaster and medical emergencies. Sit down with your insurer and review plans that can be beneficial for you in the long run. If this means increasing the premium to receive bigger coverage, then do so. Evaluate your options and go from there.
5. Clear Off Debt
While you are saving for an emergency fund, make sure that you aren’t taking your debts for granted. If you have credit card balances, make sure to clear these right away to avoid towering fees. Prioritize settling your loans and debts before you can fully maintain a general emergency fund.
There are so many things that are beyond your control, but you can definitely prepare for unexpected events to not end up with nothing in your pocket in the end. Follow these tips to deal with unforeseen financial events with confidence. Plan as early as now, and maintain your savings until you already have more than enough.