Planning for Financial Emergencies

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There are moments in life that will change everything and shake things up for you. It may be getting a pink slip at work, or a positive pregnancy test when you were not trying or it could be hearing some great news or finding the perfect job and landing it. Not all unexpected events are negative, but generally, the big ones will affect your financial future, and you may need to change the way you think about and handle your money.

If you do not already have an emergency fund, you may want to consider if you fit under any of these eight reasons to have an emergency fund. You do not want to be thrown off by small unexpected expenses. Planning now will make it much easier to handle the emergencies as they come your way. 

Prepare for the Unexpected

Even the most careful planner may be taken by surprise with news that they had not planned or prepared for. The best way to handle these events is to have prepared for the unexpected in advance. It does mean careful financial planning, and after the event happens you may need to assess your current plan and make changes, but it is nice to know you have an emergency fund and a contingency plan in place to fall back on until you have managed to wrap your head around the ways that your life will be changing.

Start with an Emergency Fund

The first step for preparing for the unexpected is to have a solid emergency fund in place.

This should be about six months of your income. If you are single or if you have a family but only one income provider you may want to increase this to a year. This will provide security while you recover from many emergencies. It is nice to know you have the money there while you are dealing with other issues such as a job loss, illness or anything that might affect your income.

Obtain Life Insurance

You also need to prepare for other unexpected situations. It is important that you have adequate life insurance for your family or your spouse if you are married. The life insurance should provide enough money to live on after you pass away. If you have children you should get enough that it can help cover the cost of their educations. It is vital that you have life insurance coverage if you have children.

Get Adequate Insurance Coverage in Other Areas

Additionally, you should make sure you have adequate health insurance coverage, and renter’s or home insurance coverage. This coverage will save you money. Many people gamble with not having health insurance coverage because they feel that they are in good health and do not need it. Medical bills add up quickly and all it takes is one serious illness or accident, and you could find yourself deeply in debt without the health insurance.

Plan for Natural Disasters

Another area you can prepare for is natural disasters. The last few years have shown just how devastating these disasters may be. They can come upon you suddenly, and you need to be prepared to deal with them. 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.

Create a Back-Up Budget

Finally, you may want to sit down and create a fallback budget of the things you could cut back on if you needed to in order to survive on unemployment or if you had another sudden change in your expenses. If you make the plan now to reduce your cable bill and decrease your cell phone plan, it is easier to put it into place once 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 created so you know you can follow it. Taking the time to do that now will help you in the future.