Life is full of unforeseen circumstances and while it’s impossible to foresee every possible change, you can certainly take some steps to ensure you are financially fortified for these surprises. Both good and bad circumstances often come with monetary implications. The question is, how do you prepare yourself financially to handle surprises like unexpected home repairs, medical bills, or job loss? Here are some steps to consider:
UNDERSTANDING YOUR CURRENT FINANCIAL STANCE
Recently, my family gathered for my grandmother’s 90th birthday. While it was a moment of joy, it got me thinking about the fragility of life and the importance of being financially prepared. I spent some time afterwards examining my financial state. Understanding your current fiscal health is vital, including knowledge of account details, securities, balances and payments. This includes all personal, retirement, and insurance accounts.
ESTABLISHING AN EMERGENCY FUND
Being ready for unexpected financial situations involves creating an emergency fund. This fund should cover between three to twelve months of living expenses, depending on your household income dynamics.
SETTING FINANCIAL GOALS
A well-defined plan can mitigate the fear of uncertainty. If you don’t already have one, consider creating a financial plan. It’s crucial to understand your current financial state and set clear paths to reach your future financial goals. This significantly helps in adapting to changes and uncertainties as they occur.
BUDGETING AND ADHERING TO IT
Creating and adhering to a budget is an essential step towards financial preparedness for unforeseen circumstances. With a well-structured budget, you ensure financial safety and effective utilization of your income.
CONSOLIDATING DEBTS
If you have numerous debt accounts like loans and credit cards, think about consolidating them into one monthly payment. By doing so, you may lower your credit costs, but remember to make well-informed decisions as it may require collateral.
PROCURING LIFE INSURANCE
It’s critical to have suitable life insurance coverage to support your family. Especially, if your income is the primary resource for debt payments, the presence of life insurance becomes essential.
SAVING FOR RETIREMENT
It’s surprising how saving for retirement can equip you for an unexpected financial crisis. Plan for life situations where retirement may not be a matter of choice but occurs due to unforeseeable circumstances like job loss. Start saving early and prioritize retirement savings in your budget.
MANAGING RETIREMENT CASH FLOW
People face unexpected changes during retirement as well. Hence, take measures to prepare for such changes. Having a retirement cash flow strategy and carefully managing your investment portfolio is critical.
ESTATE PLANNING DOCUMENTS
Regardless of your estate’s size, having a plan lets you make important future decisions and guide your loved ones in case of your demise. It’s necessary to have a range of documents ready and updated, including beneficiaries, last will and testament, and a living will.
In closing, executing the steps above will provide you with peace of mind in the face of unexpected life changes. By setting these elements in place, you’ll have your personal financial emergency plan ready, thereby minimizing the anxiety associated with financial insecurity.
