How to Prepare for a Financial Emergency
Nobody likes to think about the possibility of losing a job or catching an unexpected illness, but unfortunately, we can’t always anticipate everything life throws at us. It’s important to plan for the worst and know how to protect yourself financially when bad situations occur.
We’ve gathered a few important things you can start today that will help you prepare for a bad situation.
Build your emergency fund
The single best thing you can do to protect yourself is creating an emergency fund. This fund is made of your money and should be easily accessible. Certain long-term investments are good options for savings, but not emergency funds because they come with high fees or penalize for early withdrawals. For this reason, you probably want to choose a basic savings account for your emergencies.
The fund should be able to sustain you for a minimum of three months. That way, if you lose a job or can no longer work, you have something solid to fall back on. With the safety net of an emergency fund, you won’t have to wonder how you’ll pay for groceries or rent, even if your income has been cut off, because your living expense will be covered.
Have credit available for use
It’s always better to have cash to fall back on, but sometimes that isn’t a viable option. Whether you just haven’t had enough time to build savings, or you’ve exhausted the funds you do have, having a plan B is necessary.
The first step to making sure you have credit available is being smart about your money today. Pay bills on time, reduce debt, and keep your credit score high. That way, when you need the money, you won’t be denied.
The second step is determining what kind of credit you want to use. For homeowners, a HELOC could be a good option. It allows you to borrow against the equity you already have in your home, with a much lower interest rate than you would find on a typical credit card. Of course, you still have to pay it back, but you’ll end up paying back less than you would on a personal loan.
If you don’t own a home, check with your lender for other options. Nuvision offers multiple card options, all with their own advantages.
Plan places to cut costs
Outline the things that you like, but could do without if necessary. This secondary budget is what you will use in an emergency when every cent counts, and creating it ahead of time is a smart move. If you wait until the situation occurs, you’ll put yourself through even more stress, and might end up making bad decisions because you’re not thinking clearly.
Do yourself a favor and hash it out now, so you can save your sanity when a crisis happens. You could stop dining out, quit your gym membership, cancel cable, or even trade in your new car for an old one. These are all good places to start cutting.
Make sure you have full insurance coverage
Don’t skip out on insurance because you think you’ve got everything under control. Insurance bills might seem like they cost you more now, but you’ll be grateful you paid them if things go south in the future. Renter’s insurance, home insurance, and car insurance can prevent you from plummeting into debt because of a single accident. Health insurance can help when an unexpected illness hits, or when you suffer from an injury. Medical bills are expensive, and having to pay out of pocket can definitely do some damage.