Unexpected events aren’t necessarily negative. Sometimes we’re surprised with a raise, a holiday bonus, or a lucky lottery ticket. Then there are surprises that come with unintended costs such as a car repair, home maintenance bill, pet emergency, illness or injury, or loss of income. These are generally stressful events made more stressful with their additional—and usually high—expenses.
We’ve compiled seven ways that you can prepare yourself and your family for those types of surprises. It’s important to keep in mind that not all of these can be achieved overnight and may require significant patience, especially as the “reward” isn’t immediate. Keep at it! We promise the changes are worth it.
How to be prepared for day-to-day finances.
Much of the work to prepare for the unexpected happens with small daily actions.
Actually make a budget and stick to it.
One of the easiest to do, but toughest habits to stick to is budgeting. We know it’s hard, but it’s worth it! We suggest updating your budget regularly as a “living document.” If you have a change in income and/or expenses, adjust your budget right away. Keeping it updated in real time makes the process more familiar and less overwhelming.
You can also think of your budget as a guide. It can tell you if you’re spending more than you’re earning, how much debt you’ve paid off, and even if you spend more money at a particular store or time of month. You can create detailed budget “buckets” and expense tracker notifications directly in your Auburn Savings OnLine account.
We also suggest creating a “fall back budget.” This budget is your bare bones, only-spending-on-essentials-budget to be referenced in emergencies such as a loss of income. For this budget, only include items such as food, utilities, housing costs and any debts. If you haven’t created a budget yet, we teach you here.
Reduce unnecessary spending.
Most of our spending is essential—food, housing, utilities. Some of it isn’t—dining out too much, attending lots of events, buying new clothes, toys, devices, and other things that we don’t really need. If these purchases are getting in the way of paying off debts and saving for an emergency fund, we recommend cutting out extra spending even if it’s just temporary.
Save on the things you’re already buying.
Search for deals and coupons at the grocery store. Negotiate your cell phone plan. See if you can get lower car insurance rates at your current company. Call your credit card companies and try to lower your interest rates. Always be looking for ways to save on the spending you already do every month.
How to be prepared for longer-term finances.
Although you may not see the immediate effect or benefit, these things can drastically help you during life’s unexpected surprises.
Consider all insurance policies.
Look through all of your current insurance policies and adjust wherever necessary.
- Does your current health insurance plan have enough coverage?
- Do you need pet insurance? This helps with out-of-pocket costs on trips to the vet.
- Can you negotiate lower rates on any insurance policies?
- Do you have a short-term disability policy? This helps in times of illness and injury.
- Do you have a life insurance policy? This will help your family financially in the event of your death.
Say goodbye to debt.
Sure, some debt is a good investment (college tuition, a mortgage), but some debt just holds you back. If you have overdue medical bills or credit card balances, now is the time to make a plan to eliminate them for good.
We recognize that responsible credit card usage is perfectly okay—if you pay off the balance each month. When you carry balances on your credit cards, you’re charged interest and it adds up quickly. This is generally where credit cards get people into financial trouble. Need some debt elimination strategies? We’ve got your back!
Start an emergency fund.
This one may take the longest, but once you’ve accomplished it, whew—what a relief! Building an emergency fund is the most important thing you can do and is the ultimate goal for planning for the unexpected.
There’s no determined amount you should have set aside, but experts claim you should have between 3-12 months worth of expenses set aside. (This is where that budget comes in handy!) The amount you’re aiming to save for also depends on whether you’re single, a family of four ( or more!), and if you’re a household with one income or two.
Once you’ve determined how much you’d like to set aside in your emergency fund, look back to your budget to see how much you can save each month. This will also let you know how long it should take you to reach your goal.
For example, if your monthly expenses equal $2,000, you can reasonably set aside $200 every month, and you’re aiming to set aside a three-month stash, you can expect to reach your goal of $6,000 in 30 months or two and half years.
We know—it seems like a long time especially without seeing an immediate benefit. Think of it as taking care of your future self. Be consistent with it and celebrate the milestones along the way. Save however much you can without sacrificing your monthly bills—always pay those first! And if it helps your motivation, change the name “emergency fund” to the “thanks, me” fund. As in “thanks, me, for saving all that money for this unexpected expense!”
Say you’ve just experienced an unexpected event and your emergency fund saved the day. Now what? Well now that you know firsthand how helpful all that saved money was, start saving again! Better yet, keep saving if you can, even when you’ve reached your goal.
On the other hand, if you’ve already found yourself in a tough situation and aren’t sure what your next step should be, we’ve created a plan to get you started.
Of course, some things just can’t be anticipated like natural disasters or accidents and injuries. But that’s why your emergency fund is essential to you and your family. The idea is that life will always hand us surprises, and even though we don’t know when and where they might show up, we can act now to protect our family for tomorrow.
If you’d like additional resources about responsible saving and spending from Auburn Savings, visit any branch and a Customer Representative can assist you.