Every one of us has lost sleep at some point over the possibility of experiencing a significant adverse event that could have an impact on our stability and security. Evolution has ingrained it on us that we need to always be prepared for calamity to strike. In our modern world such an event might include losing your job unexpectedly, becoming ill or even being involved in a car accident. While none of us could predict these types of events, we can deal with them far better if we’re well prepared.
Edwin Theron, CEO at digital insurance provider Sanlam Indie says: “You might be doing a great job of preparing your financial future, but a significant accident or other unanticipated occurrence could turn your financial fortunes upside down.” He says that planning for a disaster, whether financial or health related, is just as crucial as saving for the future.
Below, we’ll discuss five of best strategies to get ready for a financial emergency:
1. Emergency funds
Saving money is difficult to prioritise, but we are all aware that doing so is necessary to be ready for a personal financial emergency. Automating your savings is the simplest approach to guarantee that you do it each month. You might be tempted to dip into your savings every now and then, but you should really aim to keep an emergency reserve for when a money crisis hits.
Note: A common rule of thumb is to aim to have about 3 months’ worth of salary available as an emergency reserve
2. Make a budget
Many people who have struggled with budgeting see it as a burden that prevents them from enjoying life. A budget does not ensure that you will spend less money, but it can help you decide and give you relevant information that can aid in deciding how to spend your money. You can have a plan for where every rand is going if you set limitations and keep track of your spending. After that, make any necessary modifications. Perhaps you discover that sticking to a budget results in a little extra each month; this may be a sign that you can comfortably increase your monthly savings contribution.
3. Reduce monthly expenses
Keeping a handle on your monthly expenses should be a priority even outside of a crisis. Perhaps you have a habit of keeping the lights on in unoccupied rooms or letting the heater or air conditioner run while you aren’t at home. Consider your cell phone plan, auto insurance, memberships, subscriptions, and streaming services. Even though they might not seem like much on their own, when added up, they can significantly lower your monthly spending and make you more resilient when disaster strikes.
Note: Consider more affordable plans for your needs by getting in touch with the providers of your plans and comparison shopping with other providers.
4. Manage your debt
Debt can pile up quickly, especially high-interest debt like credit cards. Make a strategy to pay off your debts, such as card balances, personal loans, and student loans, so that you may put that money in your own pocket. Always make the minimum payments on all accounts to maintain your credit and keep your accounts open.
5. Get insurance
It can be easy to put off getting any kind of insurance as it may seem like an additional expense and an unnecessary amount of messy paperwork. Insurance is designed to help alleviate pressure in the case of adverse events though and helps you have sufficient reserves when your own savings aren’t sufficient. This is especially for large life events like a serious illness or a bad accident. The Sanlam Indie Plan is the easiest way to find out what life insurance you need, and don’t need, in under 10 minutes.
Note: Always ensure your needs are understood so you get the right cover at the right price.
Nobody can forecast a personal financial disaster, but planning can limit its effects and lessen the stress and anxiety that comes with it. By setting aside money and controlling your debt and income, you can be ready for both anticipated and unforeseen expenses. You’ll be able to exhale a little easier the next time a financial crisis strikes.