Talk of protecting personal finances is enough to make most of us tense a little, as money is often the root of our biggest worries and fears for the future. The vast majority of people are ill-prepared for an unexpected disaster or event which will require hefty funds to solve. Unfortunately, financial problems can strike anyone, regardless of our job status or the caution we take when making decisions concerning investments, loans and simply everyday activities which pose some measure of risk.
The best way to respond to such an unexpected event when it happens, whether you see it coming or not, is to always have an emergency plan. If you’re not sure what your emergency plan would be in such an event, then you definitely need to read the pieces of advice which will follow.
Don’t spend beyond your means.
The best way to avoid dealing with financial disasters is to think about the only money you do have control over: your own finances. Whilst disasters such as economic crises or even a minor incident with another car on the road can strike unexpectedly and through no fault of your own, disasters which result from poor management of your finances can always be avoided, and that’s why it’s important that you take control over the one thing you can control.
As a rule of thumb, you shouldn’t impulse buy. This is often what leads people down the hole of spending beyond their monthly income, for example. If you buy on a spur of the moment impulse, you’re likely not thinking about the amount of disposable income you have at hand, and this is what might lead you into the red zone on your credit card or convince you to borrow money that you didn’t need to borrow. Of course, for the bigger purchases in life, such as a house or a new car, sometimes a loan needs to be taken out. This leads us to my next piece of advice…
Always pay your debts first.
Luxuries are nice, but they’re not going anywhere. That new sofa you want will still exist in a few months or an even better one will be on offer somewhere. The point I’m trying to make is that luxuries need to be put on the back-burner when you’re facing debt. It’s easy to ignore money you owe at first. When you’ve only borrowed a small amount, you might tell yourself that it’s manageable, and you could pay it back with a few months’ worth of your disposable income whilst still being able to afford rent and food. However, you should be putting all your disposable income towards paying off this debt month after month before you consider any luxuries, because otherwise you might find yourself borrowing more and more. Soon, that debt won’t be so small anymore, and you won’t be prepared for financial crises beyond your control…
Recovering from an accident or illness.
Illnesses and accidents can strike us at any time through no fault of our own. Unfortunately, if you should ever be injured at work or fall ill, you may feel a burn beyond the injury in itself. As you’ll likely have to take time off work, you may find that most employers may not provide financial cover for the time you need to take off work.
However, you could get legal help from companies such as The Brown Firm if you’ve been injured as a result of a colleague’s negligence. The important thing to remember is that, if you’ve been injured through no fault of your own, you shouldn’t accept the financial blow with a shrug of your shoulders. You’ve already suffered physically, so don’t suffer financially.
In terms of an illness or an event for which you can’t be compensated, then it does help, of course, to have a hefty pile of savings ready for such an emergency. You might only be off for a few weeks or it might be a few months, but it helps to have a preemptive plan of action, because it’s too late to do something once you’ve fallen ill.
Continuing on the theme of events which are out of your control, natural disasters strike entire neighbourhoods and often entire countries. Nobody is at fault for such an event, as it’s simply a part of nature. Yet, nonetheless, people are the ones who suffer at the hand of such events. Many families are left without a home and other earthly possessions after natural disasters, which can leave them in financial ruin if they were entirely unprepared for such an incident ever taking place.
Extreme weather events are far more common than we all like to imagine, no matter where you live in the world. A big storm could completely destroy a rickety old house, and there might be no way of recovering what you lost if you don’t have a financial plan of action; as devastating as it all may be, money is, unfortunately, the only solution to such a tragic event. That’s why it’s so important to have insurance in case of any form of natural disaster. What’s a small expense now will be a complete lifesaver if the unexpected should ever occur and you lose your home. You’ll thank your past self then.
As many people learnt nearly ten years ago, nothing is ever entirely secure. Getting financial protection and putting an emergency fund in place is more of a necessity than a precaution, as economic downturns are a regular and common occurrence. It’s not a case of “if” the economy goes through a bad patch again, but “when”. Many people passed through the recession relatively unscathed, but even the most seemingly secure job can be lost if a business is unexpectedly hit by a damaging blow to a particular industry. When that happens, you’ll thank yourself for having an emergency fund in place to tide you over until you find a new job.
We’re always dependent on our employers, the respective industries in which our careers are based and the economy as a whole for our financial security, but we need to start relying on ourselves for financial security. You’re the one person you can rely on to always look after your interests, so keeping an emergency fund today could help protect you or any family you may be looking after should a recession or financial downturn take place in the future.