By Lynnette Khalfani-Cox, The Money Coach®
Having a financial back-up plan is a vital part of achieving financial security. After all, life never goes exactly according to plan. In any given month, something unexpected can happen that throws your budget out of whack. Your car may get a flat tire; a major appliance in your home might break down; or someone in your household could get sick, and you wind up with unforeseen healthcare bills.
Although it can feel like all these emergencies come out of the blue, in many cases such unanticipated events can actually be predicted and controlled with proper planning. None of us has a crystal ball to predict the future. But by taking the following three important steps you can protect yourself against costly situations and keep emergencies from ruining your budget.
Step 1: Assess the risks in your life
Don’t just blindly go through life thinking that bad or unexpected things will never happen to you; such an approach is naïve and impractical. Instead, take a look at your environment, your lifestyle and the potential risks you could face. For example, when considering your risk of job loss, ask yourself how stable your current job is, or how secure your employer is in today’s economy. If you’re married, do the same assessment of your spouse’s employment scenario.
Other types of risks to think through are:
- Your risk of getting sick of disabled
- Your risk of divorce or marital separation
- Your risk of dying
- Your risk of suffering a major household breakdown
Step 2: Build a cash cushion to prepare for certain emergencies
Even if you don’t think that your personal risk of something is particular high — say your marriage is pretty solid, or your job seems quite secure — it still never hurts to sock away extra cash. This way, if the unthinkable does happen and you wind up in divorce court or you get laid off, at least you’ll have some level of savings to deal with these emergencies.
Ditto for protecting yourself against things like illness or accidents. Having some savings always helps. So little by little, you can amass extra funds to help keep personal or professional catastrophes from totally ruining your budget.
Step 3: Get insurance to protect against common financial setbacks
While there might be little that you can do if your employer decides to downsize you, there are some other risks against which you can actively protect yourself. And one of the best ways to offset certain risks is with various forms of insurance. Worried about earthquakes, fires or floods? Or do you live in area that’s more prone to car theft? Then look into the right kind of property casualty insurance for your residence or vehicle. Perhaps you think you might be predisposed to certain major illnesses or even potential death, based on your medical past or your family’s health history. In these cases, be sure you have the right health insurance and adequate life insurance, just to be on the safe side.
By being proactive about thinking through possible “what if” scenarios you can plan for emergencies and keep certain disruptions from ruining your family’s finances.
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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or BALANCE counselor who can help tailor a solution for you.
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