You can often think that your financial situation is just about fine until an unexpected bill exposes your vulnerability and you find that you are suddenly struggling to get the cash together that you need straight away.
Most of us have a fixed monthly income and regular bills to pay so it stands to reason that a curveball in the shape of a sudden demand for extra cash can soon throw your finances off balance.
Here is a look at how to anticipate those unexpected financial hits and cope with the sudden demand for extra cash that would be difficult or even impossible to meet out of your normal monthly income.
The easiest way to dig yourself out of a hole
A no-brainier solution that really does work for so many people is to put some money aside each month into a separate emergency savings account so that when an unexpected financial emergency arises you are in a position to cope more easily.
If you think that you can’t afford to save that much in an emergency savings fund you will be surprised at how quickly even small regular contributions can build up to a tidy sum and if you don’t get hit with any unexpected bills in the meantime you should have accumulated enough to sort the problem out.
Preparing for the future from a financial perspective is not exactly rocket science, it just requires a bit of advance planning and an acceptance that as none of us really know what is in store for us even tomorrow, it makes a lot of sense to head that uncertainty off at the pass and have a contingency plan in the form of an emergency fund.
When you start to think about it, there is a great deal of uncertainty that you would be wise to try and anticipate and plan for, just in case certain scenarios become a reality in your life.
For example, if you unexpectedly lost your job would your finances be able to cope with a sudden loss of income while you found yourself another position?
Some people find themselves involved in an accident or get injured in the workplace, causing them to take time off work and maybe have to contend with medical expenses too.
A site like https://hm-attorneys.com/ will be able to help you file a compensation claim but if you have an emergency fund in place you will have a financial buffer that you can use while that is all sorted out.
There are numerous what-if scenarios to consider and if any one of them would cause you to experience short-term difficulties that should be a persuasive argument for setting up an emergency fund straight away.
Work out how much you need
A sensible starting point when you are setting up your emergency savings fund is to try and work out exactly how much you will need to accumulate.
It is not a precise science as you can’t anticipate certain financial emergencies but you could at least work out what your monthly outgoings are and the minimum you would need to have saved if you lost your job, for example.
Putting aside any amount of money each month is better than nothing so don’t be dissuaded by the target figure if it seems a distant dream in comparison to what you have available to put away.
Ideally, aim to accumulate the equivalent of three months regular income in your emergency fund, which should be enough to cope with any unexpected bills that come your way.
Don’t confuse saving for long-term goals like retirement with short-term financial emergency requirements, so have a separate savings account that offers instant access to your emergency fund and continue with investments for your retirement planning.
You won’t be getting a great rate of interest with your money sitting in an instant-access emergency fund but that will seem almost irrelevant when you can borrow the money to pay a bill from the account and then put it back once your finances are back on track shortly afterward.
Creating an emergency fund for you and your family could make a big difference to your financial security and confidence, and it will help to avoid expensive borrowing options like credit cards or payday loans.
Get your emergency fund started today and you will feel more confident about coping with a financial demand that would otherwise have you scrambling around to deal with.
Zachary Connor is a stay-at-home Dad running the household and raising the kids whilst his wife goes out to work. He enjoys writing about family life and sharing some of his must-do’s with readers around the world.