With constant talk of the debt ceiling and a possible double-dip recession, I thought it would be applicable to talk a little about personal finance crisis events in our personal lives and what we can do about it. Like any other American, bad things happen to us. Most of the time we’re not prepared. What if you could be prepared for a financial disaster? That crisis would end up being a little less stressful.
Think about all the negative events that can happen in one’s life: car breakdowns, medical conditions, house maintenance, unemployment, and the list goes on and on. Now, the question you should ask yourself is this, “how can I financially prepare for these events?” It’s not an simple question to answer, but hopefully the following four tips can guide you in the right direction.
Dead in the water without an emergency fund
If you’ve been reading personal fiance blogs for some time now, you’re probably well aware about the wisdom of having a plentiful emergency savings account. However, it’s good to review and freshen up on it again. It’s critical that you place your cash in “liquid” sources such as banks and credit unions. If you’re faced with a crisis, you don’t want any delay on withdrawing your cash. Avoid placing your money in places that lock it in such as stocks and retirement accounts. Investing in retirement accounts is a great thing, but you need to allocate a portion of your income to an emergency fund in a liquid vehicle.
Pay down debt and ditch the credit cards
The interest you’re paying on your debts and especially your credit cards is destroying your long term financial plan and putting you at risk if a crisis does happen. Chances are, these debts are a significant bill every month. Now think about this. What if you didn’t have any debt and could be using that same money to set aside for savings, an emergency fund, or a retirement account. Your money deserves better. Make this the month where you take initiative and destroy your debts and move on with life and secure your future.
Look for extra income streams
The fastest way to build up your cash supplies and better prepare yourself for an unfortunate event is to look for ways to make extra money. Whether it’s through a side business or as simple as holding a garage sale, making that extra cash is key to boosting your income and securing your assets. Take me for example. I wanted some extra money on top of my day job salary so I started a blog. Although I don’t make much from my blog, I do supplement my main income. I’m able to cover my rent and grocery bill each month. You can do this too!
Excellent insurance coverage
As I’m a young guy, I use to think that insurance was a waste of money. Oh, how my mind has changed! Insurance is one of those things where there is a very fine line. On one hand, you don’t want to be overpaying for insurance but you also don’t want to go cheap and have missing coverage. It’s up to you to get the research done and make sure you have excellent coverage. Shop around and compare quotes from multiple companies. And don’t forget about disability insurance. I just started my new plan through my employer and it gives me the ability to take it with me to any future employers. You might want to check on this, disability insurance is a life saver when illness or injuries happen.
Are you prepared?
Anything can happen in life. Being prepared will put your mind at ease in case something drastic happens. The goal of preparation is not to prevent a disaster. The goal is to take a crisis event and turn it into nothing more than a minor setback. I hope these tips have guided you in the right direction and help you better prepare for potential financial disasters later down the road.