There’s no telling when a financial emergency will affect you, but you can be sure that you’ll experience several throughout your lifetime. Knowing that something will happen eventually should motivate you to prepare for unexpected debt in advance. If you take the time to prepare now, these financial emergencies won’t leave you in a state of shock and panic when they do occur.
Develop a Recovery Strategy
Just like running a business, managing a household means preparing for unlikely or unexpected events. One important part of being prepared is by developing a response plan for a financial emergency. For instance, determine which expenses you can cut to help you save money in a pinch. This may include canceling redundant or unnecessary services, such as cable, newspaper, and magazine subscriptions. If everyone in your home has cell phones, you don’t really need to maintain your landline telephone service. Cutting down to the bare essentials may be required, so have a plan for doing this in an emergency.
Keep an Open Line of Credit
If your credits cards are all maxed out, even a small financial emergency will turn into a devastating crisis. Getting your cards paid off quickly, and keeping at least one card completely clear, can give you the resources you need to quickly recover from unexpected debt. To this end, you may find a debt consolidation loan such as those offered by Roseland Associates and similar lenders to be highly rewarding. This helps you combine all of your debt together in one monthly payment, while also helping you reduce the amount of interest you’ll be making with those payments. Paying off more of the principal balance with each payment means you’ll pay off the debt that much sooner and save quite a bit of money in the long run.
Start Building an Emergency Fund
Financial experts recommend maintaining an emergency fund of at least $1,000, or 10% of the total market value of your home. While this is a suggested minimum, keep in mind that it will cost much more than that to recover from many financial emergencies. The more you can save, the better situated you will be to recover from unexpected debt. Even saving just 10% of your monthly income each month will help you build up a nice nest egg.
Re-Evaluate Your Budget
Creating a budget isn’t a one-time project that should determine your spending over the next decade. Instead, think of it as a living document that you should be examining and adjusting every month. This will help you familiarize yourself with your income versus expenses ratio, so you’ll know just how much money you have coming in and going out. You can use this information to create an emergency budget that will help you cover the costs associated with your unexpected debt. If you must make use of a loan, figure in what you’ll be paying out to Roseland Associates, or any other lenders you use, so you’ll have a more accurate budget. Once the debt has been fully repaid, you can begin depositing that portion of your income into your savings account. This will help you prepare for your next financial crisis.
Invest in Insurance
You might be surprised to discover just how helpful insurance can be in an emergency. Maintaining good homeowners, health, auto, and life insurance can help you more quickly recover from just about any emergency life throws at you. The coverage these policies provide can make a difference in recovering from any situation, often providing you with enough compensation to prevent you from having to borrow money. While you will have to figure these monthly premiums into your household budget, the added expenses will be minimal in comparison to the help they will provide in the future.
Start a Retirement Account
In addition to contributing to an emergency savings account, you should also start a retirement account. This will help you build the funds you’ll need to retire later in life, but it can also be used as a safety net in an extreme financial emergency. While withdrawing from your retirement account early can subject you to a 10% penalty and other fees, borrowing against it can provide you with the money you need at a lower interest rate. This may be a last resort in dealing with unexpected debt, but you’ll feel better knowing that the option is available.
Whether it’s a home repair emergency, a sudden physical injury, or some other
major life event, any unexpected situation can leave you suddenly facing a mountain
of debt. Preparing for these events in advance will help you handle the
situation that much better. Depending on how well you plan ahead, you may
weather the storm without suffering too much loss. In the end, your goal should
be to deal with unexpected debt quickly, so you can resume your normal routine
as soon as possible.