10 Ways to Prepare for a Financial Emergency
Be prepared to encounter a financial emergency at least once in your adult life. While you might think that nothing like this will ever happen to you, it occurs when you least expect it. If you have not made contingency plans to ensure that you can handle it, a crisis can overtake you and cause long-term financial damage. Here are some ways to prepare for financial problems:
Maintain a good credit score
Look after your credit score by settling your debts on time and not falling behind on repayments. When money troubles strike, you will have an easier time applying for online short-term loans than if your credit history is spotty.
Run regular credit checks against your name to ensure that no one has used your identity to initiate fraudulent transactions. These outstanding debts can cause untold harm to your credit rating, which affects your ability to secure financing.
Credit card payments
Credit cards come in handy during a financial emergency. However, they will be of no help if you have spent the maximum limit and are struggling to pay monthly instalments. Credit cards should be used with caution and not to finance other debt repayments or pay for things that should be part of your budget, such as groceries. Keep at least half your credit limit free to use when it becomes necessary.
Maintain contact with creditors
If you need money right away, which might affect your ability to service other financial obligations, contact creditors to investigate options.
For example, a creditor might offer you a few months’ payment holiday while you sort out your financial affairs. Alternatively, renegotiate the repayment terms, extending them so that you pay less each month over a longer period.
Savings
You should be trying to save some money each month to have on hand in an emergency. Put this money into a separate banking account so that you are not tempted to absorb it into your monthly budget. If you do not feel that you have sufficient funds to start a crisis savings account, consider some of the cost-cutting measures mentioned below.
Budget strictly
A firm budget helps you stay within spending limits. Set out your financial needs and wants, the former being necessary for survival and the latter being additional comforts that you could do without if you had no choice. Include a small amount for savings as a financial need. It is not a luxury and should be prioritised. A robust budget is worthless unless you stick to it, which is the hardest part. However, a bit of discipline will go a long way.
Manage your bills
Examine your monthly expenses and see where they can be trimmed to allocate money towards savings. For example, is your household wasting electricity by burning your lights unnecessarily or not using energy-efficient bulbs?
Changing your usage habits can reduce your monthly balance. Downgrade your mobile package if you are not using all its benefits to save additional funds.
Keep track of assets
You might have non-cash assets that you could sell in an emergency. There is no need to cash out on them right away but look after them in case it becomes essential. Examples include a second vehicle, antiques, tools, and furniture. Know their value so that you do not settle for less than their worth when you need to sell them.
Insurance premiums
Shop around for cheaper insurance products that cover your home, its contents, and any vehicles you own. Many companies offer to beat any current premiums if clients choose to do business with them. Find out about consolidating short-term insurance, including household contents and vehicles, as premiums tend to be lower than when you have separate policies.
Perform routine maintenance
Financial emergencies are sometimes preventable, while others come out of the blue. However, do not let a problem with your vehicle due to a lack of maintenance develop into a cash crisis, where you need money to pay a mechanic or face not travelling to and from work.
By then, the job of fixing the car is twice as big and twice as expensive. Look after your assets, including your home, by performing routine maintenance to prevent large repair or replacement bills.
Keep debt to a minimum
It is all too easy to succumb to the need for instant gratification by going into debt to buy something that you could easily save for instead. Debt should be utilised for necessities and large purchases, such as homes and cars. It should not be how you finance holidays, new appliances, and gifts.
When you start going into debt on a whim, it is hard to get out of it again. People wind up trapped in a debt cycle, where they take on new debt to pay existing balances. If this happens, seek advice from a financial adviser early to escape the trap before it becomes virtually impossible.