It’s a fact of everyday life that the unexpected can, and often does, happen. Gathering emergency supplies and being prepared for the worst helps your chances of survival. But it’s also worth asking yourself if you and your family are prepared financially to survive the unexpected. Do you have a financial backup plan or an emergency fund to help you weather the storm?
A backup plan or emergency fund is a financial safety net to help cover unforeseen expenses or financial challenges. These include things like:
- The loss of a job
- Major medical problems
- Expensive repairs
- Rebuilding in the aftermath of a natural disaster
- A death in the family
Studies have shown that fewer than half of American families have a financial backup plan. That means that the majority of us are only one incident away from ruin or bankruptcy. Emergency funds are needed to help when the unexpected happens.
A financial backup plan usually means putting money away. Experts recommend having a savings account that can cover at least eight months of living expenses. However, you might need more depending on the number of people in your household. That amount should also be enough to cover other expenses like taxes and payments on outstanding debts.
Developing a financial backup could also mean having an additional source of income and adequate insurance coverage. In order to save some each month, it’s always helpful for families to create a budget and then stick to the plan.
Here are some ways to get started developing a backup plan or emergency fund:
- Cut Back – It’s always surprising how much you can live without. Some of the conveniences of modern life can be gotten rid of in order to save some money. These include things like cable TV, magazine subscriptions, and new books and movies. Find low-cost or free alternatives like borrowing books, magazines, and movies from the local library.
- Filling Out Your Tax Forms Correctly – Many people miss out on hundreds of dollars in tax deductions every year. Then they spend their refund all at once. How about using that tax refund to jump-start your backup funds?
- Seasonal Employment – Temporary or seasonal employment can help you ride out financial storms and save for emergencies by offering an additional source of income.
- Trick Yourself into Saving – Setting up automatic payroll deductions or automatic transfers into savings accounts means that you don’t have to handle those funds.
However you go about developing your own financial backup, just remember that it’s worth the effort. When those funds are needed, you won’t regret it!