The Sunday Mail
The Balance
While not all unexpected events are negative, generally, the big ones that affect your financial future tend to negative surprises. This possibility of unexpected financial hardship means you may need to change the way you think about and handle your money. A little planning (and saving) now will make those emergencies and unexpected events much easier to handle when they come your way.
Prepare for the Unexpected
Even the most careful planner may be taken by surprise with an event that they had not planned or prepared for. The best way to handle these events is to prepare for the unexpected in advance. Build up an emergency fund to pay for an unexpected medical bill or house repair. Also, have some easily accessible, liquid cash on hand, just in case you need it in a hurry.
You can get insurance to cover your health, home, car, and your life. Healthcare coverage reduces the amount of out-of-pocket expense you will pay from an unexpected medical event. Motor vehicle 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 certainly can’t plan for everything, it is nice to know you have a contingency plan in place when things go awry. Keep in mind that once you experience an unexpected expense, you may need to reassess your current plan and make changes.
Start With an Emergency Fund
The first step for preparing for the unexpected life event is to have a solid emergency fund in place. Your emergency fund should be relatively liquid and 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.
Obtain Life Insurance
It is important that you have adequate life insurance to provide for your family. This will benefit your spouse — if you are married — and will provide for any children you have. When your family depends primarily on your income to pay debts, life insurance is doubly 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.
Create a Back-up Budget
Finally, you may want to sit down and create a fallback budget. The 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. — Wires.
