Plan for the Unexpected: 4 Ways to Prepare for a Financial Emergency

What would you do right now if you heard that a member of your family has an urgent medical emergency? Suppose the amount needed for the health bill was more than you could offer. You can’t just let them suffer. You need to find a way to help them. To avoid such problems in the future, you need to have a financial emergency plan. Here are 4 strategies that you can use to prepare for the unexpected:

Emergency Savings Account

The first strategy that you can use to prepare for a financial emergency is build up your cash reserves. You can open a savings account dedicated to financial emergencies. Then, put aside a specific percentage of your monthly earnings in that account. Be disciplined and don’t touch that money. That way, you will always have money for emergency situations.

Make Sure that You Sort out the Debts

Another way to prepare for an emergency is to settle your debts on time. Since you are going to set aside money in an emergency fund, make sure that you also set aside cash to clear your debts. Your first priority should be to eliminate high interest debt like credit card debt which can be 20% or 30% annually. Surprisingly, there is no legal limit on what a National bank can charge on a credit card as long as they disclose it properly in their paperwork. You may have heard of a recent case where a bank was actually charging 79.9%! At that rate your debt would double in a little over a year. Even at 20% your debt will double in about 3.6 years. So it is very important that you get yourself out of the debt trap as quickly as possible. If you look around you will find many people who (once they put their mind to it) paid off $5,000, $10,000, and even $50,000 in record time.

So if you get out of revolving (i.e. credit card) debt you will be that much better prepared to handle the unexpected hurdles that life throws at you. Once you’ve taken that first step you can use Dave Ramsey’s “debt snowball” method to tackle your other debts and soon you will be totally debt free.

Get Rid of Other Unnecessary Expenses

If you want to have enough money to deal with a financial emergency, you have to get rid of some expenses. For example, instead of paying for gym membership, why not save that money and commit yourself to morning runs every day. You can also do away with club memberships if you rarely go there. When you cut down on expenses, you will feel less financial pressure when it comes to handling an emergency situation.

Maintain Your Credit Score

Another effective strategy is maintaining your credit score. Make sure that you pay your debts on time to prevent it from going down. The thing about having a good credit score is that it allows you take a loan at a good interest rate when you need it the most. This means that you’ll be in a much better position to handle an unexpected financial emergency.

You can use the mentioned four ways to keep your finances in check and get ready for an emergency in case there’s one. If you have the time, you can also invest in a liquid business to provide you with that extra source of income.

One of the most common reasons for a financial setback is an illness or injury. If you’ve recently been in an accident, you should contact a personal injury attorney to see if you might qualify for some financial compensation. However, at the end of the day, your financial health comes down to financial discipline. Don’t spend money recklessly since you never know when you’ll need it most.

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