It is a known fact that life is an unpredictable journey. Unanticipated circumstances that result in financial emergencies are known to occur at any time during that journey. Unexpected medical bills, property damage, vehicle repairs, and accidents can and will result in significant levels of stress and financial strain.
Based on statistics, it has been estimated that 6 out of every 10 homes in the United States will experience some type of financial emergency each year. Nearly half of all of those people experiencing unanticipated financial issues would struggle to come up with just $400.00. Those are staggering statistics given that most often pay over $500 to have a single tooth extracted. What would happen if your car’s radiator broke or your tooth became infected? What if you got a cancer diagnosis and had to miss work due to having to have radiation treatments done daily?
Financial Stress
If you are facing unanticipated circumstances and are forced to put out money that you simply do not have, it is likely to result in a vast amount of financial stress. This type of stress is capable of completely overwhelming you. It does not matter if you are attempting to manage the debts that you have, are trying to deal with creditors, or just trying to buy groceries; financial stress is capable of destroying a person.
The good news is, there are many practical steps and numerous resources available to help individuals and families with navigate the financial challenges that suddenly arise in life. Preparing for financial strains can feel like a burden and difficult, but if you have the right mindset, tools, and strategies in place, you can achieve success in this endeavor. In this guide, you will learn how to prepare for the unanticipated and successfully navigate saving, budgeting, and managing debt so that you are able to achieve all of your goals. With money, you should always expect the unexpected.
Create a Comprehensive Budget
In terms of financial wellness, a budget is considered to be the absolute foundation. A budget is more than just keeping track of your earnings and your bills. It allows you to completely understand where the money that you have is going and helps to make certain that you are able to successfully cover all of your essential expenses and prepare for those unanticipated circumstances. There are – at least – three individual components to a budget. They are as follows:
- Essential Spending – This spending includes housing, transportation, food, child care, healthcare, and the minimum payments associated with your debts. You should ensure all of this constitutes no more than 50% of your total take-home earnings.
- Essential Savings – You should strive to dedicate 15% of the before-tax income that you have for your retirement. You should take a total of at least 5% of the income that you take home for an emergency fund for all those unanticipated circumstances that life throws at you.
- Discretionary Income – The part of your income that is left over after the essential spending and savings should be used for additional savings, personal goals, and/or entertainment.
The following lists some tips for creating and maintaining a budget:
- You should look at and track the way you spend your money and see if you are capable of identifying areas where it is possible to cut back and save more.
- You should take the time to prioritize what you find to be “important” and “fun”. Then, you can start saving for those items. Examples include going out as a family or taking a vacation.
- Utilize one of the many tools or apps to automate and to monitor the budget that you have.
Build Up an Emergency Savings Fund
The next step to prepare for unanticipated circumstances is to set up an emergency fund. This is a safety net for your financial livelihood. This type of fund will help you handle all those unexpected expenses that occur in life, without completely derailing your savings or having to resort to taking on an immense level of debt. The following outlines the goals that should accompany every emergency fund:
- When you first start your emergency fund, you should make a goal of putting $500 to $1000 into the fund.
- As time goes on, your goal should be to save at least 3 months ‘worth of essential expenses.
- Finally, your goal should be to save up 6 months ‘worth of essential expenses.
The following outlines how to save successfully when it comes to your emergency fund for unanticipated circumstances:
- Automate your savings by setting up deductions with your employer on your payroll to go to a specialized account.
- You should cut-back on all non-essential expenses until you have a lot of backup money in your emergency savings account. That means stop eating out, plan out the meals you want to make prior to grocery shopping, and cutting up unnecessary subscriptions like magazines and/or streaming services.
- Make sure the emergency fund is accessible and it is liquid. Instead of a traditional savings account, you should consider a money market account or CDs that are short-term.
Insurance Coverage Evaluations
We all know and understand that insurance policies are a favored tool as far as financial preparedness is concerned. You should review all of your policies – health insurance, homeowners’ insurance, renters’ insurance, flood insurance and vehicle insurance in order to make certain that you have the right amount of coverage for your needs. Flood insurance is known to take up to 30 days to go into effect, so be certain to plan ahead. Each year, make sure that your insurance policies are renewed.
Control The Debt You Have Accumulated
It is no secret that managing debt is considered to be crucial when it comes to financial-based stability. If debt is left unchecked, it can leave you stressed out, negatively impact your credit and your FICO score, and put a dent in your ability to successfully handle those unanticipated circumstances that life throws your way. The following outlines ways that you may pay down the debt that you owe:
- In the Avalanche Method, you place an emphasis on paying off the loan that has the highest interest rate first because it will save you the most money on interest as time progresses.
- In the Snowball Method, you pay off the smallest debt first. This helps to build healthy momentum and helps in providing a solid sense of accomplishment.
Debt Management Tips
- Make sure that your debt-to-income ratio is at or below 36% at all times.
- If you have to borrow, go for the lowest interest rate and minimize the terms of the loan.
- Place a focus on paying off the debts that have the highest levels of interest so that you pay less, over time.
Keep Cash Accessible
In terms of unanticipated circumstances, it is advised that you keep a certain amount of actual cash accessible. In many emergencies, you may not be able to access your money through an ATM. This means storing cash in a safe place in case you need it will prove to be 100% invaluable.
Play an Active Role in Financial Safety
If you want to prepare for a financial emergency, you should be proactive, not reactive. It is advised that you put in a consistent effort. This means you should start an emergency savings account, review your insurance policies, create an emergency plan, seek financial guidance, and this will allow you to create a financial safety net that is strong and renders your success when faced with all of those unanticipated circumstances in life.
Contact Us Today
We here at Somerville Bank work diligently to help our customers develop a proactive approach in their finances. We have over 115 years of experience. We offer consumer accounts, credit cards, savings accounts, mobile banking, online banking, loans, auto loans, identity theft services and more.
Our financial advisors are standing by and ready to assist you in discovering your options when it comes to handling financial emergencies. If you are ready to get to work on preparing for all of those unexpected circumstances that life will throw at you, we are ready to help you!
Somerville Bank now has a total of 8 convenient locations throughout the State of Ohio. When you decide to take a proactive stance in your finances, simply click on the link below to find a branch that is nearest you. You may then call us or come in for customized financial advice. We will walk you through all of the options that we offer and we will make recommendations for your financial success based on your income, and your needs. We offer online services, lobby services, and Drive thru services in all of our locations. Our main office is in Eaton, Ohio and can be reached by calling: 937-456-5588 The link to identify locations near you is as follows: https://somervillebank.net/locations/
We look forward to serving you!
Somerville Bank has 8 Locations