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Financial emergencies can strike when you least expect them, even if you’ve been doing everything right. These emergencies cause stress and anxiety, especially if you’re the type of person who likes to be prepared. The first step for many to financial independence is having an emergency fund. By planning ahead and saving now, you can more easily handle unexpected events and emergencies when they do occur.
Prepare Now for Unexpected Events
Don’t be surprised when unexpected events arise that affect your finances. Be prepared to handle these events by building up an emergency fund to help pay for these instances, such as a home repair or medical bill you did not anticipate. It’s also important that you set up this fund to be easily accessible since you’ll want to be able to access the money quickly in some instances. Most experts recommend having three to six months of basic living expenses in your emergency fund. If this isn’t a realistic savings goal for you right now, aim to have at least $1000 in your account.
If you’re single or a family living on one income, it may be even wiser to save for up to a year of living expenses. By having a year’s worth of expenses available, you’ll be protecting yourself and your family from events such as a job loss, or severe illness or injury that keeps you away from work for an extended period of time.
By having these funds available, you’ll be able to stress less and fully focus on the emergency instead of worrying about paying your bills. If you don’t have an emergency fund in place and you’re hit with a larger unplanned financial emergency, your best option may be a personal loan. Have bad credit? These are the best personal loans for bad credit (Our Top 8 Picks for 2019).
Most individuals have insurance to cover their home, care, health and their life. Health insurance drastically reduces the out-of-pocket expenses that need to be paid when an unexpected health-related event occurs. Home and auto insurance protects you in the event of a fire, damage from a natural disaster such as a hurricane or tornado, or an accident. In the event that you were to die unexpectedly, life insurance would help protect your loved ones that you designate as beneficiaries.
These insurance plans act as contingency plans when things don’t go as expected. Your insurance plans should be periodically reassessed and updated as well. Life insurance is especially important if you have a family, and even more so if you are the only source of income. Life insurance benefits are given to your spouse and any children you share.
Your life insurance benefits should provide enough money for your family to pay off any debts if you were to unexpectedly pass away. Benefits can also help to cover the costs of education for your children.
It’s worthwhile to ensure that the health insurance coverage you have is adequate. Many people risk their finances each day by not having enough health insurance coverage when they choose a low premium, but high deductible policy. Health-care related debts are the #1 cause of bankruptcy. Accidents and unexpected illnesses happen, and the medical bills associated with them can add up quickly. Your financial issues could be compounded if an injury or illness leaves you unable to work.
Additionally, you should check if your home or renter’s insurance provides enough coverage. If your home were to burn down, would you be able to recover with your insurance benefits? Even if it seems like you’re just adding to your monthly budget with more coverage, you could be saving yourself from massive debt down the line.
Prep for Natural Disasters
If you live in an area that may experience tornadoes, hurricanes, floods, fires, or earthquakes, you need to be prepared to deal with these natural disasters. These disasters can come out of nowhere and drastically uproot your life. Talk to your insurance provider and find out which natural disasters are common where you live and if they are covered. Often, flood insurance is an additional “add-on” to home insurance and is not always covered.
You can also plan ahead by prepping an emergency kit for your home. A good emergency kit will contain at least a five-day supply of food and water. These kits do not need to be fancy or overstocked, but should be able to help you get through a few days without necessities. You can look into purchasing pre-stocked kits that will last you a few years in storage.
Have a Contingency Plan
If you do run into a larger financial emergency, it can give you some piece of mind to have a contingency budget in plan. This budget removes things that you don’t necessarily need and can do without for some time. The contingency plan is great to have in place if your financial situation arises suddenly since you’ll easily be able to go back and make cuts, particularly at a time when you may not be thinking clearly.