When it comes to unexpected events, many of them are negative and can affect your financial future. This means you may need to change your mindset and how you handle money. Simple planning (and saving) now will enable you to easily manage those emergencies and unexpected events when they arise.
Preparing for Unexpected Events
Even the most careful planners can be surprised by an event they hadn’t planned for or prepared for. The best way to deal with these events is to prepare for unexpected surprises in advance. Build an emergency fund to cover an unexpected medical bill or home repair. You should also have some easily accessible liquid cash in case of urgent needs.
You can obtain insurance to cover your health, home, car, and life. Health insurance reduces the amount you will pay out of pocket for an unexpected medical event. Car and home insurance helps to offset the cost of an accident, fire, or damage caused by a natural disaster like a hurricane. Life insurance protects your loved ones in the event of your unexpected death.
While you can’t plan for everything, it’s good to know that you have a backup plan in case things go awry. Remember that once you incur unexpected expenses, you may need to reassess your current plan and make changes.
Starting an Emergency Fund
The first step in preparing for an unexpected life event is to have a solid emergency fund in place. Your emergency fund should be easily accessible and cover three to six months of standard living expenses.
If you’re single or live in a household that relies on a single income, you might want to consider building an emergency fund that lasts up to a year. This provides you and your family with a full year of necessary funds. This is especially important if you lose your job and have difficulty finding another one, or if you experience an unexpected illness where you can’t work for an extended period and will have a gap in your income.
It’s reassuring to know that you have money here while you deal with other issues like job loss, illness, or anything that may impact your income. Remember, you don’t want to be affected by small unexpected expenses.
Getting Life Insurance
It’s crucial to have sufficient life insurance to provide for your family. This will be beneficial for your spouse – if you’re married – and will provide for any children you may have. When your family primarily relies on your income to pay off debts, life insurance is doubly essential.
The death benefit of the policy should provide enough money for your beneficiary to pay off debts after your death. If you have children, you should obtain enough to cover their education costs. It’s essential to have life insurance if you have children.
Getting Adequate Insurance Coverage in Other Areas
Additionally, you should ensure that you have adequate health insurance coverage and renter’s or homeowner’s insurance. While adding bills to your monthly budget, having this coverage will save you in the long run.
Many people gamble on not having enough health insurance coverage. They feel they are in good health and do not need coverage and will opt for a low-cost policy but with a high deductible. However, accidents happen, and healthcare bills can add up quickly. All it takes is one serious illness or accident, and you could find yourself in deep debt. If you get injured and are unable to work, it will only exacerbate the problem.
Planning
For Natural Disasters
Depending on where you live, it may be wise to prepare for natural disasters. Disasters include hurricanes, tornadoes, floods, wildfires, and earthquakes. These disasters can happen suddenly, and you need to be prepared to deal with them. Look at the common natural disasters in your area and talk to your insurance provider about the coverage you may need.
Additionally, it’s a good idea to have a well-stocked emergency kit containing a five-day supply of food and water in your home, car, or office. The kits do not have to be large or very complicated, but they can make a difficult situation much easier to handle. An essential item in your emergency kit should be a small amount of cash and a list of your credit cards and other accounts with phone numbers to call.
Creating a Backup Budget
Finally, you may want to sit down and create a backup budget. The backup budget should leave out items you can cut back on or forgo if necessary. This backup budget will help you be prepared in case you face an unplanned financial event or a period of unemployment.
If you set the plan now, it will be easier to implement when the time comes. At the beginning of a crisis, you may not be thinking clearly, and it’s helpful to have a plan prepared in advance that you can follow.
Updated by Rachel Morgan Cottero.
Source: https://www.thebalancemoney.com/planning-for-financial-emergencies-2385813
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