Have you ever asked yourself what would happen if you were to be hit with a sudden and unexpected emergency such as a layoff, a medical emergency, an arrest that needed you to be bailed out, or if your kid got into a financial jam which needed money to resolve? Well, according to a research conducted by the Federal Reserve, close to half of the households stated that if they were to be hit by an emergency that needed them to give out more than $400, they would have to get a loan or sell something to resolve their crisis. This goes to show how little people think about and prepare for emergencies. If you want to be a better planner, here are 5 ways in which you can plan for financial emergencies.
1. Build up a cash reserve
It is possible that you have heard this before, and maybe you have never tried it, but one of the best ways in which you can be prepared for any eventualities is by building a cash reserve. The ideal amount that should be in your reserve should be just about enough money to cover your expenses for three months. Get an account and designate the role of emergency account to it. Deposit money to it till you hit the needed threshold. When you have money that you can survive on for a number of months, you will be capable of surviving a financial emergency.
2. Reduce your consumer debt
Not many people think about the possible implications that credit card debts and other types of consumer debts would have on them if they were to get into a situation that forced them to miss payments. Focus on reducing your current credit card debts and bringing them all the way down to zero.
3. Insure everything
Another great way to make sure that you are ready for any emergencies which may come up is getting comprehensive insurance cover for everything. Make sure that your home, health, personal effects, and personal liability insurance premiums are up to date so that in case of anything, you will not have to pay too much from your pocket.
4. Diversify your investments
This comes in handy in situations where you are employed and you lose your job, or if as a businessman, you have invested in one sector, and an emergency leads to the business shutting down. You will need to have a backup plan to help you survive the tough times and more so if your business has employees who depend on you for their survival. When you have a number of investments, you can support yourself with income from the other sources till one storm blows over.
5. Keep a good credit rating
There are emergencies which you can save for and avert with your money, but there are also situations which have the potential to spin so far out of control that you will still need to borrow on top of your savings to cover the emergency. In order to be on the safe side, you need to make sure that you maintain a good credit rating so that in case a situation arises where you have to borrow money, you will easily borrow it and handle your emergency.
Those are some of the important ways to get prepared for any emergency which might come your way.