5 steps to prepare your family for a financial emergency | News, Sports, Jobs
More than half of American families live paycheck to paycheck. According to the Federal Reserve, at least 32% of American families would be in dire straits if a major financial emergency occurred.
And the higher the expense, the less they can afford.
The general rule is to save three to six months of your monthly expenses for emergencies. It looks different depending on your family situation. In theory, a childless couple will have more access to extra money than a family of five.
Either way, you need a plan, and the first step is to decide what kinds of emergencies you want to be prepared for (car repairs, hospital stay, hurricane damage or tornado at your home), and then take steps to make sure you’re ready for them when they do happen.
You will need to consider the most critical expenses in an emergency and the benefits that could be avoided or reduced in a crisis.
Managing your finances can be stressful, but it doesn’t have to be. Making a plan for unexpected emergencies is key to managing your money and keeping stress levels low. Let’s start.
I. Create a buffer
Planning for financial trials starts with making sure your budget has some wiggle room. If you’re already overspending, look for ways to save on insurance, groceries, cell phones, and more. You can also cancel services like entertainment subscriptions to create a buffer if needed.
Use your stamp to start an emergency fund. Set a goal for how much you want in the fund and set aside money each month. Once you have your emergency fund in place, the next step is to keep it growing. You can set up an automatic transfer from your checking account to a high-yield savings or money market account each month to build up a healthy reserve.
The size of your buffer depends on your income, essential bills, and how long you can live without a single income if you live in a dual-income home.
Kelly Klingaman, founder of Kelly Klingaman Financial Planning (KKFP), says, “I generally encourage families to accumulate three to six months of their static living expenses – what specific bills they have committed to pay in the past that they have to keep paying to run their household like mortgage, utilities, childcare, etc. – plus any amount needed to pay for variable but necessary expenses such as gas and groceries.
“This could potentially represent tens of thousands of dollars for a particular family, so helping clients create micro-earnings markers along the way will encourage them to continue their systematic and disciplined savings process.”
II. Balance your books
Balancing your books is key to managing your financial situation, especially if you live paycheck to paycheck. It’s important that you know how much money is coming in and where it is going out so you can spot any problems before they become serious.
If you have lost track of your finances, take the time to review any accounts in which you have savings or cash investments, such as checking accounts, savings accounts, company stock and retirement funds. Write down each account and who holds those assets on your behalf or on behalf of others.
You may also want to keep track of household assets such as cars or real estate – this information can help determine the amount at risk in the event of the unexpected such as losing a job.
Once you’ve made this list, consider transferring money from each account to another just for emergencies so that you have about three months of savings. This way, in the event of an emergency, whether due to illness or unemployment, you know exactly how much money will be available.
III. Prioritize access
Accessing your emergency funds in a financial crisis is more important than worrying about the interest rate. You should always have access to your money. Don’t turn to credit cards or other high-interest loans to pay for emergencies when you already have cash available in various accounts.
To ensure quick access to emergency savings, you may consider opening a second bank account. This way you can quickly use the money in an emergency. If the account comes with a debit card, you can store that card in a safe place if needed. If you are responsible for credit cards, another option is to use your credit card for an emergency and pay it off immediately with your emergency fund.
IV. Pay first for emergencies
Don’t procrastinate when you’re stuck with a sudden medical bill. If you can’t pay for something now, act as soon as possible. Don’t borrow money to cover an emergency expense, it only makes things worse in the long run and puts you in debt. Pay for urgent and necessary things and set up payment plans for other things if needed as well.
Nothing is worse than going into high-interest debt to pay for an emergency. So even if you don’t earn high interest on your emergency savings, it could help you avoid paying 10% more interest using a credit card or, even worse, something like a payday loan.
V. Consider insurance
If you are not already covered, consider purchasing a few types of insurance. For example, life insurance can help your loved ones if you die unexpectedly, and disability insurance can provide income if you get sick or injured and are unable to work. .
In addition, auto, home, and tenants insurance are important to protect your property against fire and theft. Dental and vision insurance may also be worth considering – it protects against high costs for routine dental care or glasses/contact lenses that are not covered by medical insurance plans.
These policies can not only protect you in the event of a financial emergency, but they can also significantly reduce the cost than if you did not have them.
According to the Federal Reserve, “Twenty percent of adults had major, unexpected medical expenses in the past 12 months, with the median amount between $1,000 and $1,999. Fifteen percent of adults had debt from their own medical care or that of a family member (not necessarily from the previous year).
Even if you don’t know the emergency, you can prepare for it financially. It is essential to put money aside to cover the cost of emergencies and unemployment. Then, when you have savings on the line and insurance policies, if any, you can be sure that you and your family will be taken care of.
The importance of preparing for a financial emergency
Nothing can set your family back more than an unexpected financial emergency that you are unprepared for. However, with three to six months of emergency savings, adequate insurance, and quick access to that money, you should be able to avoid a crippling situation.
Building an emergency fund should be one of the first steps in your financial journey. One thing is sure; emergencies will happen. Tires will burst, refrigerators will shut down, people will get sick, and basements will leak. Hopefully not all at once, but you get the point. If you are ready to face these unexpected expenses, you will live a more serene financial life.
According to a recent study by Ramsey Solutions, personal finances and money were the top stress-causing issues, with 1 in 5 saying their money caused them stress. “important” amount of stress.
As noted above, one of the best ways to build your emergency fund is to hide some money in a separate account. For example, the next time you get a small raise at work, take that money and have it automatically deposited into another bank account instead of increasing your expenses. Over time, this account will grow to cover several months of emergency savings.