Do You Have a Financial Back-up Plan?

worried-girl-413690_1280Do you feel like you are finally starting to get a grip on your finances? Maybe you’re finally bringing in a steady and consistent income. Maybe you’ve recently grown your emergency fund to be able to cover several months’ worth of expenses. Maybe you are starting to get control of your debt and make some lead way on payments.

It’s great to move see improvement with the way you manage money and save, but it’s always best to be prepared for the worst to strike. Whether your current situation is good, great, or getting better, you need to have a financial backup plan.

When the Worst Happens…

Most people don’t like to think about the worst case scenario, but life can be unexpected at times. If you or your spouse lost your job, it’s important to discuss how you will handle your finances and survive on less money until that income can be replaced. If you or someone close to you ends up getting injured or has medical issues and you become unable to work for an extended period of time, you need to have a Plan B to put into effect.

If a financial disaster strikes, you don’t want to get deep into debt or lose your home or anything else you own as a result.

Here are a few ways to help you develop a financial backup plan that works for your situation and can be put into effect to protect your family and finances.

Create an Emergency or Bare Bones Budget

Odds are, you spend a little more than you need to each month. Even if you are good with money and track your spending carefully, if you look at your current budget, you may see some expenses that can be slashed if you absolutely had to cut them.

Jot down a bare bones budget that your family would follow if your income ever drastically increased for any reason. Write down only basic necessities like your rent/mortgage, food, utilities bills etc.

Beef Up Your Emergency Fund

Financial experts recommend having anywhere from 3-6 months up to over one year of expenses saved up for an emergency. If you started strong this year but tapered off, start making saving a priority again despite the holidays at the end of the year.

Multiply your bare bones budget by 6 so you can work toward saving 6 months’ worth of basic expenses. You can even set aside more as you see fit.

A well-funded emergency fund not only gives you peace of mind, but security and reassurance that you’ll be able to make it by and have all your basic needs met if your main sources of income fall apart.

Make Sure You Are Properly Insured

Insurance is a must no matter who you are. It may seem like you’re throwing money away each month when all is well but it’s always a relief to know that you have insurance to help with major expenses related to your home, your vehicle and medical issues.

Talk to your carriers and try to negotiate lower premiums but stick with the coverage that you feel is appropriate. For example, if paying a $5,000 deductible would be extremely hard for you in the case of a financial emergency, you should choose a plan with a lower deductible around $1,000.

If an accident happens or someone needs medical care, your insurance will cover most of the expenses which prevents you from having to take on large amounts of debt.

Emergencies can happen to anyone. It’s important to be prepared and develop a backup plan to help make it through a tough situation.

Have you ever had to drain your emergency fund for an unexpected expense? What does your financial backup plan look like?

Posted in: Money

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