It’s perfectly natural to think “that will never happen to me,” but unexpected emergencies do happen, and it is crucial to be prepared for them.
There are some precautions you can take before, during and after a financial emergency to ensure you stay on track and financially afloat.
Create an Emergency Fund.
Prevention is better than cure, especially when it comes to your finances. Try to set aside a certain amount of your income each month to prepare for the unexpected. Ideally, this should be able to cover several months of living expenses and be highly liquid, so you’re not left with savings you can’t access. If you struggle to save or have relatively little to put aside, consider looking into one of the many spare-change saving apps that are now available. Additionally, you can sit down and think about small things you could cut back on to increase your emergency fund — that fifth latte may be one too many!
Have Insurance in Place.
One way to avoid financial emergencies is to have insurance policies in place to protect against them. This can include homeowners, medical, disability and life insurance, as well as any vocation-specific policies you think you might need. Homeowners insurance is typically required if you have a mortgage, but even if you don’t, it could be worth it to avoid any sudden unexpected expenses. Health and dental insurance can often be signed up to through your workplace, but make sure you have the right plan for your needs, or it can be counterproductive.
Short-Term Loans.
Of course, all the savings and insurance in the world can sometimes not be enough — whether due to a previous emergency, limited withdrawal availability or high deductibles. On some occasions, you just need access to money quickly. There are several short-term lenders on the market, but if you’re looking for a more flexible option or a cashfloat alternative, then do some research into what you need now, so you’re not left short when the time comes. These services can offer a quick cash injection with the ability to pay it off over an agreed period, reducing the stress during the emergency.
Put Together a “Cutback Plan”.
Just like cutting back in order to save before a financial emergency, you can also have a “cutback plan” or “fallback budget” in place for after. This is a plan of different ways to significantly reduce outgoings if the need arises. It will focus on much bigger cutbacks than your emergency-fund savings plan and could include everything from dropping subscriptions (streaming services or the gym) to canceling vacation plans or even downsizing your house and car. This doesn’t have to be a permanent new budget but may run for several months while you get your finances back on track.
Being ready for a financial emergency comes down to three stages: Before, prepare with an emergency fund and insurance; During, know where you can find a quick cash injection; After, have a plan in place to reduce expenses if necessary and follow your payment plans.
