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4 Tips for Planning for Financial Emergencies

Group of professionals leaving office after layoff or being firedWe don’t always know when the unexpected will happen. That doesn’t mean we can’t plan for it though.

In fact, one of the best things you can do for your finances is to look ahead and prepare for the inevitable emergency. Here are four tips you can use for your plan:

  1. Start with Your Rainy Day Fund

It’s old news, but the reality is that many Americans still don’t have the resources to handle a $500 emergency. That means you probably need to beef up your rainy day fund.

Get started even if you feel like you can’t set aside a ton. Every little bit helps. Set aside money each week that can be used for a rainy day.

This also includes paying attention to what’s happening with your expenses. While things do happen unexpectedly, the truth is that we often get clues that something is about to break down. The washing machine behaves erratically, or you notice something about the fridge. Once those signs appear, start setting money aside.

  1. Plan for Routine Costs

You know that the oil needs to be changed in your car every so often. There are plenty of other maintenance milestones that come with owning a car too. You need to plan for these items. From home maintenance to the fact that your kids need to get clothes for school every year, there are routine costs in your life.

Make a plan to save a little bit each month for these routine costs. You can use a system that helps you prepare to meet these challenges when they arrive, preferably a system where savings are automated. That way, you won’t have to rely as heavily on your emergency fund or (worse) your credit cards.

  1. Perform an Insurance Audit

When was the last time you checked your insurance coverage? Do you have the right amount? Will it cover your situation? Double-check your coverage.

Make sure your home is covered. What if you’ve recently bought some expensive items? Are they covered against loss? Look at your health insurance coverage. Will it be enough if you end up in the hospital? Is the deductible affordable? On the other hand, are you paying for too much coverage and not freeing enough money to save?

The right insurance coverage can go a long way toward helping you out when you’re in a pinch. And don’t forget the life insurance to cover your family, just in case you pass on.

  1. Know What You Can Cut

Finally, make sure you know what you can cut from your budget in an emergency. Which items are the first to go? Which items, when cut, could result in immediate savings? This exercise can help you spring into action once a financial emergency strikes. It’s a good way to stay on top of things.

Plus, looking at your spending with a critical eye can help you now. If you take the time to review your spending and identify areas of waste, you can plug those leaks now. Divert the money toward other goals, like building a rainy day fund or preparing to buy a new appliance.

As you get into making these plans, you are far more likely to see good results and boost your ability to handle almost anything that can come up. How prepare are you? Would a $500 emergency cripple your finances? Or is it more like a small bump on the road?

 

Source: MoneyNing