Financial emergencies don’t have to look like natural disasters or serious injuries. If you’re like a large percentage of people in the United States, you’re just one or two paychecks away from financial disaster. Without monetary resources, there’s no money for necessary medication, fresh groceries, or mortgage payments. If you’re living paycheck to paycheck, however, is it possible to set money aside for emergencies? One of the best things you can do to become financially prepared for a significant life upset is to change the way you think about your money. Make a doable plan and commit to making regular small savings deposits from each paycheck.
Revisit Your Existing Budget
One of the best ways to find money to save is to track your spending meticulously and then overhaul your budget. Can you account for every quarter you spend during the week? If you’re used to grabbing a soda when you fill up at the gas pump, you could redirect that expense into an emergency fund. When you track all of the money you spend between paychecks, you’re likely to find unnecessary expenses that you can limit. Experts recommend a 50-20-30 rule: less than 50 percent of the paycheck should go to essential expenses (mortgage, groceries, and utilities,) 20 percent should go to savings, and non-essential expenses should account for no more than 30 percent.
Begin With Small Deposits
You don’t have to sink large chunks of your paycheck into survival products; instead, consistently make small deposits into a short-term emergency fund. Set a relatively small target amount and increase this goal once you meet the first target. This emergency savings amount should ultimately be enough to cover a surprise home repair or medical bill. Take a look at the last few repairs you’ve had and use those costs to determine your savings goal. It’s also important to have a stash of cash available for situations that require immediate access to money.
Create a Long-Term Savings Plan
An ideal long-term emergency fund should have enough money to keep you going for about three to six months. If there’s only one parent or one income in the family, this emergency fund should be big enough to last up to a year. When planning this fund, identify everything you can cut out of your budget while living on your savings. During a financial emergency, your secondary budget probably shouldn’t include subscription services for television or music stations, for example.
Review Your Expenses
If you’re having trouble finding any money to put into savings, take another look at your non-essential expenses. You can save a lot of money by cutting down expenses such as eating out or picking up a coffee each morning. Another tip is to have some of your paycheck transfer immediately into your emergency fund, so you don’t even see it.
Make It Inconvenient To Access Savings
Keep your short-term and long-term emergency funds separate and in safe places. For example, your short-term savings could be stored in a bank account that isn’t linked to your checking account. Your long-term savings should be even more secure; put that money into a money market account or something similar that isn’t easy to make withdrawals from.
Invest in Adequate Insurance Coverage
It can be difficult to put a lot of your paycheck into an insurance plan, but health, home, and car insurance coverage protect you from the immediate expenses you’ll face during a medical emergency. A natural disaster, such as a hurricane, can leave you with expensive damages, and insurance coverage is an important resource as you work through the recovery process. While assessing your insurance needs, don’t forget to research the value of life insurance. Could your family survive without your paycheck?
Prepare for Natural Disasters
No matter where you live, it’s important to consider the possibility of natural disasters. Depending on where you live, this may mean preparing for an earthquake, wildfire, flooding, or a hurricane. Remember that these disasters happen suddenly, and you may not have much time to prepare. Even a single inch of water can lead to expensive damages. Figure out which disasters are most likely to happen in your area, and then prepare an emergency survival kit.
Pack an Emergency Survival Kit
These kits don’t have to be expensive to repair. Create a list of foods, basic hygiene, and tools you should have on hand for five days. If you can, save a gallon of water per day per person in your household. Don’t forget to factor in food and supplies for any pets in your home. Before packing this emergency kit away, put some cash, credit card numbers, and copies of important documents inside.
Improve Your Credit Score
You may not think your credit score has much to do with surviving a financial disaster, but if you find that you have to take out a loan to cover your medical bills or to put a new roof on your home, good credit is essential. While preparing for future emergencies, check your credit score and take steps to improve it. There are even rewards programs out there who will pay you cash for building your credit. Credit Sesame is an industry leader who has helped millions with their credit scores. Now, they have developed Sesame Cash that rewards people monetarily for improving their credit scores.
With a good score, you’re more likely to get low-interest rates on loans, qualify for higher amounts of money, and get better car insurance rates. You’ll also have a better chance of finding a place to rent while your home isn’t available.
Pay Down Debts
Reduce your debt to improve your credit score. There is some debate regarding whether to put money into savings first or to pay off debts first, but most experts recommend building up your savings first. Once you have your long-term savings ready to go, it’s time to pay off your credit cards and other debts. If possible, consolidate your debts into a single loan with a lower interest rate.
Many Americans are a single accident or home repair away from financial ruin. The loss of a job or an extended illness can lead to homelessness or bankruptcy. Protect yourself and your family by preparing for emergencies. Rework your budget, establish emergency funds, prepare survival kits, and repair your credit. Disasters often happen without warning, so it’s important to start today.