Being financially prepared can help mitigate the potential impact of emergencies on your health and lifestyle. Sadly, most people already know this but still fail to make any sort of preparations. As such, their personal finances are sent spiraling down the minute they receive an unexpected hospital bill or speeding ticket. Here are four tips on how to prepare for such emergencies:
Keep an Emergency Fund
This should be separate from your savings account. An emergency fund, as the name implies, should only be used in times of emergency. All other savings should be put into a savings account. Withdrawing from an emergency fund should entail stricter procedures and parameters than when you’re withdrawing from a savings account. As a general rule of thumb, your emergency fund should be at least the same amount as your monthly expenses.
Secure a Life Insurance Policy
You should have confidence that your family can handle themselves financially in the event of your untimely demise. You get that degree of confidence through a life insurance policy. This insurance policy will benefit your spouse and any children you leave behind. The payout from your life insurance should provide enough cash for paying any of the outstanding debt that you left behind plus any expenses that your family incurs thereafter.
Pay Down Debt
Especially high-interest debt, such as personal and payday loans. Any time you have leftover cash, pay down your debt. Limit the use of credit cards, or better yet keep only one credit card active. This will help grow your credit history and score without exposing you to the temptations and risks of a higher line of credit.
Keep Yourself Liquid
Avoid investments that tie your cash down and involve a stringent withdrawal procedure. Moreover, avoid lending out money to people unless you know they can be trusted enough to pay the amount back immediately. In a financial emergency, you’ll want to be able to string up enough cash without having to jump hoops to acquire said cash.
Preparing for financial emergencies can yield a more stable future for you and your family. Without an emergency fund to rescue you from unexpected expenses, you’ll end up resorting to high-interest payday loans that will simply bury you in even more debt.
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