Most people spend their entire adult lives trying to ensure they’re protected from financial disasters. Whether it’s working two jobs, maintaining a stash of savings or paying into a 401k, keeping some money aside each month can be an effective way to put a buffer between you and financial problems.
Learn more about your finances
You may assume you know everything there is to know about your own finances, but you probably don’t. Can you remember your exact post-tax salary? Do you know what interest rate you’re paying on your mortgage, or how much you contribute to investments every year? You’d be surprised how little people know about their own finances, and this can lead to financial issues in the future.
If you’re overestimating the amount of income you have or underestimating your financial liabilities, it could leave you vulnerable to money problems. By studying your finances and making yourself away of your actual situation, you can ensure that you’re better prepared to cope with any unexpected financial disasters that crop up.
Cut costs now
Examining your finances also gives you a great opportunity to identify expenses which could be reduced or removed altogether. Many people discover that they’re still paying for old subscriptions and memberships that they no longer use or want, so canceling these is a quick and easy way to reduce your outgoings straightaway.
You can also use this opportunity to identify your most costly expenses and find ways to minimize them. If you need a car to get to work but you’re spending a lot on gas, for example, would switching to a more economical vehicle save you money in the long-term? Alternatively, finding out which credit card provider is charging the most interest so that you can aim to bring the balance down, is a good way of prioritizing debt payments and preventing them from getting out of hand.
Spend extra money wisely
If you do come into an unexpected windfall, it’s human nature to want to spend your riches on the things you enjoy. You’ll have the urge to book a holiday, redecorate your kitchen, buy that new outfit, or object you’ve been lusting after. However, whilst there’s nothing wrong with treating yourself, there’s also lots to be said for using these times to plan for the future. Whilst you’re financially solvent, consider making extra mortgage payments using that extra cash – by paying off your mortgage more quickly, you’ll be stepping closer to true financial safety and stability, whilst cutting down on the interest you’ll have to pay in the long term.
So, by all means, book that holiday. First, however, check what debts or expenditures you could ease by paying lump sums while you can. This is a great way to stave off future problems and protect you and your family in years to come.
Pay into an emergency fund
Saving your money for an emergency may not be as exciting as saving for a holiday or the latest model of phone, but it is vitally important. When you have an established emergency fund, you can ride out potential financial disasters and minimize their impact. If you were to suddenly lose your job, for example, an emergency fund will enable you to pay your essential bills, such as your rent or mortgage, while you’re searching for another role. In this situation, your emergency fund would prevent you from losing your income in an already difficult situation, so it’s easy to see the benefit of planning ahead and preparing for what the future might bring.
Get the right insurance
For Americans, getting the best medical insurance you can is a major part of avoiding financial disaster. Every year, millions of Americans incur expensive medical bills or, even worse, they’re prevented from getting the medical treatment they need due to financial limitations. If you can afford to take out medical insurance, explore your options with different providers to find the policy that’s right for you.
Depending on your employer, there may be a work-related policy in place, which could help you to obtain medical insurance at a lower rate. However, not all policies are the same and most medical insurers will still require you to pay a proportion of your treatment costs. Read the small print carefully so that you can contribute to your emergency fund accordingly, and ensure you have the funds you need to pay your policy excess or contributory costs.
Even the most straightforward of accidents can result in serious injuries, and medical costs can easily spiral. A simple slip and fall may not cause dangerous trauma is most cases, but even tripping over could lead to broken bones, internal injuries or life-threatening brain injuries. Whether you need medical treatment for an illness or injury, having insurance in place can ensure that your medical requirements don’t have a considerable impact on your finances.
Although it’s important to check your finances regularly and keep up-to-date with changing contracts and new offers, many people get stuck in a rut when it comes to their financial situation. If you’re worried about your income or debts, facing up to your finances can be particularly worrisome. However, understanding your finances, identifying potential cost-saving measures and accessing the appropriate protection can help to prevent a financial disaster from occurring. Furthermore, organizing your finances will also help to mitigate and minimize the impact of an unexpected cost, so you won’t be at risk when a sudden or unforeseen event occurs.
