Life doesn’t always go as planned — transmissions fail, roofs leak, refrigerators break and people move. Don't be caught off guard. Be prepared.
Now is a good time to start an emergency fund to cover life’s unplanned expenses. An emergency fund can alleviate unwanted stress, keep you from scrambling to find cash and help you avoid making a bad decision when the unexpected occurs.
Here are three ways to help you prepare for the inevitable:
Open an emergency fund right away and add what you can to it every paycheck. Financial experts say that ideally your emergency fund should eventually have enough in it to cover expenses for three to six months.
If you don’t have enough money to set aside even a small amount, it’s time to look at where your money is going. Chances are that you can find somewhere to scale back your spending.
Budgeting for unknown expenses, or expenses that you know could occur based on past experience, is called planning for a contingency. Even though you can’t predict the exact nature or amount of the costs, you can anticipate them.
Look at your actual costs over the past six to 12 months to determine the cost of these miscellaneous expenses. They may include such expenses as regular car and home maintenance, weekend excursions and kids activities. Even out-of-pocket costs for health and dental can be substantial.
It’s not enough to simply maintain extra assets you can use in case of an emergency. You need to have access to an emergency fund when you need it. It’s also important to think about how you invest your emergency to make sure you preserve what you have set aside.
This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.