Financial planning to prepare for unexpected expenses is one of the crucial steps in life. It is a good practice for the employed and business owners to prepare for emergencies. The steps below will enable you to prepare and better handle unexpected expenses.
Take out a loan
A loan is a low-cost option for consolidating your debts or refinancing any high-interest credit cards. Overall, you save money by lowering the total amount of monthly interest. Many lenders offer chances to borrow money online with no credit check based on your current income and not on your past history. You can get same-day financing to handle unexpected expenses before things escalate at competitive rates and terms. On top of that, you get to keep your credit score intact and avoid any additional problems in the future.
Track spending
Knowing where your money goes is essential. You learn the expenses to cut and keep the savings for future use. It will take you from constantly feeling like the money is not enough, so you cannot find some to put aside for unexpected expenses. Note down all your expenditure, check credit card and bank statements then record the information on a spending tracker. You can track it manually or on a computer. Track the budget, fixed and variable expenses for a particular period like a month, 3, or 6 months. Give these to each of the spending:
- Date
- Description
- Category
- Amount
Tracking spending for a period helps determine where every penny goes and cut unnecessary expenditures for future emergencies.
Create an emergency fund
An initial step to prepare for unexpected expenses is to have a solid emergency fund. The money will help you when something like a job loss affects your income. You will be in a position to plan for the future when a lack of expected income does not throw you off balance. Open an emergency account to keep a certain percentage of your income and keep increasing it. The target is to achieve an ideal emergency fund that holds at least 3-6 months of the amount you take home. People with fewer expenses can build an emergency fund for a year or more. After putting enough money into an emergency account, you can divert the funds into savings or reduce your debt.
Try a spending freeze
Despite the availability of loans, you still have to pay. The most convenient way is to have your money for unforeseen happenings. A spending freeze even for a week helps save cash that was going to unnecessary spending, and it will boost your emergency savings account. You can try the 70% rule whereby all expenses should not surpass this percentage. Split the remaining 30% of income to saving for unexpected expenses, paying debts, investments, or funding education.
Get a side hustle
A side hustle enables you to make extra money to add to emergency savings. It does not have to be a significant position. Something like tutoring or selling handmade items after work still qualifies for a side hustle. An extra job also gives you the comfort that there is a way to cover some living expenses if the usual income generator is not there. You will not start tapping into the emergency fund immediately.
After all the above efforts, get more protection against any eventualities by acquiring enough health and life insurance cover for your family. Shop around for the best provider.
