Just because everything in your life is going according to plan right now doesn’t mean it will always be that way. We all experience emergency situations, and those situations often come with a loss of money or income.
For example, a natural disaster could leave you with thousands of dollars’ worth of repairs that need to be done to your home, while an accident could mean that you’re trying to figure out how to get by while trying to decide if you should hire a personal injury attorney.
Although it’s true that you can’t plan for every emergency, there are things you can do to plan ahead so the financial aspect of an emergency doesn’t catch you unawares.
Create a Dedicated Savings Account
The first step towards making sure you always have a little extra money to cover emergency expenses is to have a dedicated savings account. That doesn’t mean you have just one account either. It’s a good idea to have more than one.
For example, if you have just one savings account, you may be tempted to empty it the next time you’re planning a vacation. Instead, have a separate account for things like vacations and things like emergencies. That way, the money is there when you need it.
Wondering how much to save? A general rule of thumb is to save 20 percent of your income, but if you can’t quite afford that, it’s always better to save a little bit than it is to save nothing at all.
Work on Reducing Your Debt
It’s also a good idea to work on reducing your debt. If you find yourself in a sticky financial situation, the last thing you will want to do is spend money you should be spending on food and utilities on things like student loans and credit cards.
If you’re having a hard time making the commitment to pay off your debt, you should consider a specific strategy that works for you:
- Debt snowball, where you pay off the smallest debt first, then apply that amount to the next largest debt.
- Debt avalanche, where you pay off the highest interest rate first, then the next highest.
- Debt consolidation, where you combine old debts into one with a lower interest rate.
- Debt management plan, where you turn to a nonprofit credit counseling agency for help.
Get the Right Insurance
Insurance can be a real pain, but nothing compares to the pain of finding yourself in a situation where insurance would have greatly helped you pay for something that you’re now stuck footing the bill for yourself.
Health insurance is a must, but there are other types of insurance you may also want to consider. Disability and life insurance can save your family, should you ever be in an accident, while adding the right policies to your homeowner’s insurance can make sure you’re protected against things like floods and fire.
Keep up on Maintenance
If you live in your own home or you own a car, maintenance should be a part of your regular routine. Even though it’s easier to let things slide, and even if it means saving money in the short run, it will mean spending a lot more money in the long run.
It’s a lot easier to pay an HVAC company to clean your system every year, and it’s a lot easier to fix that weird noise in your car the second you hear it than it is to shell out hundreds or even thousands of dollars when they break down. Especially if they happen to break down when you’ve fallen on hard times.
Create a Bare Bones Budget
Creating a bare bones budget can help you save more now, but you don’t necessarily have to follow that budget immediately. Having one in your back pocket can put your mind at ease knowing that you can face any financial challenge that comes your way.
Look for ways to cut your monthly expenses and see how much you could save if you followed a bare bones budget. Even if you never have to follow it, having it handy means you can put it into action the second you need it, ensuring you can always pay your bills.
Things may be going well for you and your family now, but an accident or an illness can catch you unawares, and before you know it, your family could struggle to pay the bills and keep your household running. Make sure you’re ready by following the financial tips on this list.