Building an emergency fund, improving your income, and investing in the right assets won’t automatically make you rich, but it’s a great start. Here’s everything you need to know about being financially prepared.
Planning for the Unexpected
The key to living a financially free and comfortable life is preparedness. This includes preparing yourself, and your wallet, for whatever life may throw at you. Whether it’s a spontaneous night out or an unexpected illness that needs urgent treatment, you should have enough funds.
Don’t know how to plan for the unexpected? To get started, you’ll need a:
How many times have you ever wondered what happened to your money? This is a clear sign of poor money management. To resolve it, you need to create a finance journal and start keeping track of your expenses. It should contain a complete, detailed breakdown of everything you spent money on for the duration of the month.
Then, at the end of every month, set aside a few hours to read and analyze your finance journal. See what spending you can completely remove and what you can reduce. For example, you can lower your monthly energy bills if you subscribed to the cheapest gas in Cincinnati Ohio
Life Insurance Policy
The ultimate form of preparation anyone can make is signing up for life insurance. By becoming a policyholder, you’re guaranteeing the financial safety of your dependents in the event of your untimely death.
Build an emergency fund you can readily access any time you need to. They should be liquid assets amounting to at least half a year’s worth of your income.
Important: Do not touch your rainy-day fund unless you absolutely need to.
Importance of an Emergency Fund
Still on the fence on whether you really need an emergency fund? Well, you shouldn’t be! Having a strict money management plan and hefty rainy-day fund, you can access any time will allow you to address issues such as:
- Unforeseen Diseases and Illnesses: The truth is that hospital treatments aren’t free. In fact, they’re quite expensive. And if you or a loved one would need to be rushed to the hospital, it’d help if you had enough funds to cover the room rental, professional fees, medicine, and actual procedure.
- Home and Appliance Repairs: Everything has a lifespan, even appliances. They’ll all break down eventually. Luckily, having an emergency fund means you can resolve these types of issues as quickly and hassle-free as possible. Just give your repairmen a call, and they’ll handle the rest.
- Unemployment: As grim as this might sound, but you can lose your source of income at any time. Employees get fired, businesses fail, and clients terminate contracts. Such is life. Apart from securing multiple sources of income, create a rainy-day fund that you can access if you lose your bread and butter.
Ways to Save for Your Emergency Fund
Building a rainy-day fund can be quite difficult, especially since the problem doesn’t exist yet, and there’s no clear goal to work toward. Not many people have the ability and discipline to create a money management plan geared solely for insurance purposes. They’d rather spend their money now and worry about issues later.
How do you make things easier? Here are some simple budgeting tips you can try:
Tip #1: Reducing Monthly Expenditures
There are a number of ways to reduce your monthly expenditures. The best money-saving tips include:
- Finding the cheapest electric company with the lowest rates
- Saying no to eating out
- Cooking meals on your own
- Avoiding unnecessary luxuries and expenses
Tip #2: Keeping Track of All Payment Dues
Just because the bills aren’t due yet for another month or so doesn’t mean you can completely ignore them. This kind of attitude is what leads to delayed payments.
The best approach here is to create a calendar of all your bills and dues. Map out all the weekly, monthly, quarterly, and annual payments you need to make. That way, you can start planning for them as early as possible.
Tip #3: Committing to a Fixed Savings Amount Every Month
Decide how much you want to save every month and commit to it. The key here is discipline. For example, let’s say you decide to dedicate 10% of your monthly income to your emergency fund. Force yourself to commit to the set amount, no matter what.
Now, there are a number of ways to do this:
- Deposit the amount to an account that you can only take money out of on specific occasions.
- Create a separate bank account and have it automatically deduct money from your monthly income.
- Take the money out of the bank and place it in a jar labeled “rainy day fund.” This one is a bit outdated, but it still works.