We spend an entire lifetime responsibly saving and preparing for the greatest purchases that are to come in our lives. Buying a vehicle, buying a house, and helping our children achieve the best educational experience we can provide. But most of us forget to save and prepare for the financially dark times of our lives as well. The ad hoc savings that we do are not always sufficient
It is a hard pill to swallow but financial emergencies can strike at any time. Losing a job, a medical event, a natural disaster. All of these and more unforeseen scenarios can threaten to topple the financial balance we build over several years. While it is important to save up for the best moments of our life, it is also crucial to prepare for the worst.
Here are a host of financial tools, tips and points you can keep in mind right away to help you and your family prepare for any financial emergency to come:
- Create an emergency fund:
The first step of the preparation is, of course, to have funds set aside for the sole purpose of dipping into during “rainy days”. Set a cash reserve, open a savings account dedicated to the purpose of a financial emergency and keep setting aside some money to build the perfect emergency fund for your needs.
It is advisable to store funds that are sufficient for three to six months, but depending on your current job security and financial responsibilities, you can extend the fund’s duration to cover as many as 9-12 months. This can prove particularly helpful in times when your career seems to be on shaky grounds, or when you are looking to make a career transition in the near future.
- Ensure adequate insurance coverage:
Despite being one of the most populated countries in the world, India lags far behind other nations when it comes to being insured. This, despite the fact that term insurance plans are an extremely affordable and straightforward option for people of most income groups.
In times of financial emergency, bills start piling up and the value of a good insurance plan becomes more evident than ever. Make sure to safeguard your family’s future by finding a trusted insurance provider and investing in a variety of their insurance options.
- Maintain a healthy credit score:
Firstly, make sure you have a borrowing strategy in place. Even if you do not need a loan right away, do your due research to find a trusted lender and settle on a comprehensive loan plan you might require in case of a financial emergency.
Secondly and most importantly, make sure to maintain a healthy credit score so that when a financial emergency strikes, you can avail the loan you require under the most favourable conditions.
- Manage expenses beforehand:
This is the regular prep work that you must keep doing whether there is a looming financial emergency ahead or not. It just makes simple financial sense to follow a weekly, monthly or quarterly budget to prevent you or your family from ever finding themselves in a position where money is hard to come by.
Keep a tight rein on your expenses at all times - not all tax benefits need to be splurged and not all month-end savings need to be spent in trivial expenses. By learning to live below one’s means, you guarantee that in times of financial crisis, you will not have to make any radical adjustments to your lifestyle.
Apart from these basic guidelines, make sure to always have your financial records handy and organized. Take out some time to collect all the essential information you might need in case of any unforeseen circumstances, such as job loss, damage to property, medical events or even death.
Make sure your family members are privy to essential information and insurance policies that would help provide for them in the event of your unfortunate demise. If you do not have any insurance coverage, make sure to avail a trusted, affordable and straightforward term insurance plan that would help keep your family’s future secure.
Financial emergencies require just a little bit of anticipation and a lot of preparation. But above all, it is essential to be able to manage one’s finances smartly, be it during, before or after a financial crisis.