Life is full of surprises, and sometimes, those surprises are very expensive. To prepare for these types of unpleasant moments, you should set up an emergency fund.
What’s an Emergency Fund?
An emergency fund is a sum of easily accessible money — you can either have cash reserves or a savings account — that’s specifically saved for critical and unexpected expenses. It’s for moments when the rug is pulled from under your feet, and you need to recover quickly from the fall. There are two types of emergency funds that you could build: a short-term fund and a long-term fund.
A short-term emergency fund should have approximately $1000 inside of it to resolve small to moderate surprise expenses. Here are some examples:
- Flat tires
- Clogged sinks
- Small pet problems (fleas, worms, ear infections)
A long-term emergency fund should have about three to six months of your salary inside of it. The significant fund is meant to cover life-altering emergencies. Here are some examples:
- Job loss
- Serious illness
- Death in the family
What Else Can You Do?
Having an emergency fund is an excellent way to save yourself from falling into financial trouble. But is it the only thing you can do to protect yourself? These are some other steps that you can take:
Pay Down Debt
Your debt management can already be described as a juggling act. Adding one more expense into the mix would be a disaster. Instead of setting yourself up for this precarious position, you should try your best to pay down your debts before a new priority comes up.
Get Professional Help
If you’re having trouble repaying your debts, you should go to a professional for help. Licensed insolvency trustees are trained to assist clients recovering from a financial loss and guiding them toward a place of recovery and stability. Their expertise could make it easier to recover after you get hit with a financial emergency.
A better strategy would be to book a consultation with a trustee before disaster strikes. They offer debt management and credit counselling services to help you with debt repayment, budgeting and saving. With these services, you could get a good head start on cutting down your debt-load and filling up your emergency fund.
You don’t have to get insurance for everything. But, it’s a wise decision for circumstances when the cost of damages will be well beyond the limits of your budget. So, you could skip the tech warranty and repair program subscription and pay for your broken smartphone screen out-of-pocket. On the other hand, basement floods and car accidents will cost you thousands of dollars in recovery. Getting the right coverage could save you from jumping into serious debt.
Learn about Financial Aid
At the moment, workers across the country have had their financial stability suddenly shaken. As of March, the government expected that 4 million people were going to apply for emergency financial aid to cope with unemployment or reduced wages. These aid programs were designed to help people cover essentials like housing, food and utilities.
It’s better to be safe than sorry. Being prepared for the worst can make sure that you can recover from any nasty surprise, whether it’s a sick pet or a sudden lay-off.