No one wants to imagine worst-case scenarios. Unfortunately, emergencies are inevitable, and when they do occur, it’s imperative to be prepared. Preparation means having a financial plan that will cater to your unforeseeable future, especially emergencies that have to do with injury, illnesses, or job loss. For these kinds of events, your best line of defense is having a plan that will ensure you have some liquid fund in your pocket to cater for at least six month’s expenses. Often, the unforeseeable costs are too high to pay using your regular income, and for that reason, you need to have an elaborate emergency plan to protect yourself.
Rainy Day Fund
When planning, begin with your rainy day fund. Although this is a cliché, many people still do not have enough resources to take care of emergencies that add up to $500. This means you have to increase your rainy day fund. Even when you feel you have nothing to set aside, begin with the smallest unit you have. Set aside some money every week and in the end, you’ll have something to use for your emergencies.
Apart from that, you need to pay attention to your expenses. While some things occur unexpectedly, there are clues that they are about to happen, but many people tend to ignore these cues. When your washing machine makes abnormal sounds, or the fridge does not respond to temperature settings, it is clear that something is wrong. Once these signs begin to manifest, start planning your finances, and set aside some money for emergencies.
Get a Short-Term Loan
While you need to be cautious about summing up your debt, having some money available during an emergency can be helpful as this could take you through your rough patch. There are online entities that can help if you don’t have enough money in your contingency fund and you need short-term loans. However, you should remember that the interest rates for these kinds of loans can be high and for that reason, only take them when you are out of options.
What Can You Cut?
Always know what you can take off from your budget during an emergency. What items when removed could lead to immediate savings? By knowing what items to cut, you’ll be in a position to spring into action during emergencies. This is an excellent way of staying on top of things. Additionally, evaluating your expenditure can go a long way in knowing what items you do not require in your budget. If you can review your expenses and pinpoint the areas of wastage, you’ll be in a position to plug the leaks. You can then divert the funds towards meaningful goals such as building your emergency savings.
As you continue making these plans, you’ll realize your financial goals are falling into place. You’ll see excellent results and enhance your ability to take care of emergencies. So, how prepared are you? Would an emergency of $500 cripple your finances? The answer to this question depends on how well your financial plan has been executed.