One of the few certainties in life is that emergencies can hit at any moment. Yet despite this universally known fact, a lot of people remain financially unprepared when something does happen, whether it’s an illness in the family or a car accident. In fact, according to a recent Bankrate survey. only 41 percent of Americans would be able to manage a $1,000 emergency bill without having to resort to debt options, such as credit cards or loans. To help bump up the stat, here are six tips on how to plan for financial setbacks and save for emergency situations.
Create an Emergency Fund
An emergency fund awfully sounds the same as a savings account, but the former type of savings is actually a reserve for financially dire situations while the latter usually acts as the frontline for unexpected minor expenses, such as a monthly rent increase or an overdraft bank fee. An emergency fund should only be used in situations that threaten your health, safety, or financial security. The amount you set for an emergency fund depends on your monthly net savings. For instance, if you are saving $1,000 every month, at least 10 percent of that should be put straight to your emergency fund.
Secure Life Insurance
Being able to provide for your family is one of the most important responsibilities you have as an adult. In the unfortunate event that you become injured or die, you’d want to make sure your family is able to pay off any existing debt and has financial support for their basic everyday necessities. How much coverage you need depends on your family’s size, age, and cost of living. For instance, if you have young children or children with special medical needs, you’ll want insurance that covers for their future education or medical treatment.
Insure Other Key Assets
This includes your house, car, and health. Although having multiple insurance policies will eat off a palpable portion of your monthly income, having coverage has its long-term benefits. Families with pets should also consider pet insurance, especially if their pet is a puppy or a senior, both of which often require more frequent visits to the vet for vaccination or medication. One trick to keeping insurance costs low is to reduce coverage on assets that are older and have lower value, such as for an older model car.
Secure Legal Counsel
People often avoid legal services unless they are required to secure it. But having a go-to lawyer who is licensed and experienced in cases like yours can have a significant impact on the outcome, including settlement amounts. Having a car accident lawyer, for instance, improves your odds of getting the compensation you deserve for when a distracted driver runs into you. Make sure to find a good one in your area, for instance, if you live in New York you might search for a car accident lawyer in Rochester. Legal representatives know of any new laws enacted to penalize those at fault and are capable of organizing a fool-proof case in your favor.
Have Multiple Sources of Income
Multiple income streams protect you from any major economic or personal changes that result in loss of employment. Having a part-time job or an investment portfolio that generates passive income in the form of stock dividends can cushion the financial blow of unexpected unemployment. In today’s gig economy, you have plenty of options for side hustles, such as Uber driving or pet sitting. Many side hustles can also be done from the comforts of your home, such as web design or bookkeeping.
Have a List of Things You Can Cut Back On During Financial Hardships
Immediate modification of your expenses can go a long way in avoiding any debt accumulation. Know what one-off or recurring items you can cut back on when the situation calls for it. Some items to put on your list include content streaming subscriptions, magazine subscriptions, gourmet food brands, and weekly out-of-town trips. Preparing a list in advance helps avoid panic during financial setbacks. You don’t want to just hastily cancel insurance plans or financial services while there are other ways to cut expenses.
Final Thoughts
How well you respond to financial emergencies is deeply intertwined with how fiscally responsible you on normal days. Cutting back on frivolous expenses, avoiding toxic debt, and building multiple income streams all culminate in being able to respond to financial emergencies.
