How to Financially Prepare for the Unexpected
Life comes at you fast – while not all unexpected events are negative, in general the big ones that affect your financial future tend to be negative surprises. There is always a possibility of unexpected financial hardship, which means that you should be proactive with how you handle your money. Covid-19 has been a direct example of this. Planning and saving, just a little, will make emergencies and unexpected events much easier to handle when they occur.
Prepare for the Unexpected:
Even individuals who carefully plan can be taken by surprise with an event they had not planned and prepared for. The best way to approach this is to prepare for the unexpected in advance. An emergency fund should be built to pay for unexpected medical bills or a house repair, while easily accessible cash on hand should be available in case you need it in a hurry.
“You can get insurance to cover your home, car, and your life. Auto and home insurance help offset the cost of an accident, fire, or damage from a natural disaster like a hurricane. A life insurance policy protects your loved ones in the event of your unexpected death.”
While you can’t possibly prepare for everything, having an advanced plan eases stressful and unexpected situations.
Start with an Emergency Fund:
An emergency fund is a general first step for preparing for unexpected life events. This solid fund should cover three to six months of standard living expenses.
“If you are single, or you are a single-income-family, you may want to consider building an emergency fund of up to a year. Having a year’s worth of funds provides security for you and your family. This is especially important if you should lose your job and have a hard time finding another one, or suffer an unexpected illness where you are unable to work for an extended period and will have a gap in your earnings. It is nice to know you have the money there while you are dealing with other issues such as job loss, illness, or anything that might affect your income. Remember, you do not want to be thrown off by small unexpected expenses.”
Obtain Life Insurance:
Adequate life insurance is important to provide for your family. Especially if your family depends primarily on your income, this is very important.
“The value of the policy’s death benefit should provide enough money for your beneficiary to pay off debts after you pass away. If you have children you should get enough that it can help cover the cost of their education. It is vital that you have life insurance coverage if you have children.”
Plan for Natural Disasters:
Adequate life insurance is important to provide for your family. Especially if your family depends primarily on your income, this is very important. Depending on where you live or are traveling, it is wise to plan for natural disasters. Tornados, floods, forest fires, etc. can occur unexpectedly and you should be prepared to deal with them. See what natural disasters are common where you live and talk to your insurance provider about the coverage you may need.
“Additionally, a good emergency kit with a five-day supply of food and water is good to have on hand in your home, car, or office. The kits do not need to be very large or elaborate, but they can make a difficult situation much easier to get through. An essential element of your emergency kit should include a small amount of cash and a listing of your credit cards and other accounts along with the contact phone numbers.”
Create a Backup Budget:
Finally, you may wish to create a fallback budget. “This fallback budget should leave out the things you could cut back on or do without if necessary. This fallback will help you be ready in case you experience an unplanned financial event or a period of unemployment. If you make the plan now, it will be easier to put it into place when and if the time comes. At the beginning of a crisis you may not be thinking clearly, and it helps to have a plan already laid out that you can follow.”
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