There is no doubt that life loves to keep us on our toes, and there is nothing we can do about that, especially when it comes to our finances.
Additionally, there may be unexpected medical bills or urgent repairs to your home or car. Furthermore, this can easily derail your financial goals and planned budgets. That said, there are a few things you can do with your personal finances to ensure you are ready for these surprises without worrying about your next steps.
Create An Emergency Fund
The first thing that you should do is build an emergency fund, so this is your safety net. This will be the buffer, helping you keep hidden costs covered without getting into debt.
Ideally, you want to save between 3 and 6 months of your living expenses. Start small with minimal costs and keep up with the contributions. This also needs to be in an accessible account if you ever do need to withdraw the money.
Track Your Expenditure
One of the most important things that you can do in your life is track your expenses. Be smart with your budgeting each month. Track everything, from your small outgoings to your large.
Bills, food, and money for savings.
Any money that comes in or out of your account should be tracked. If you notice bad spending habits, we recommend cutting back on those expenses. There are many apps and budgeting tools that you can use to help you with this, so make sure you utilise them.
Prioritise Essential Expenses
When an unexpected cost arises, you need to ensure you pay the essentials first.
Utility bills, food bills, rent/mortgage, car/travel expenses, and anything else that is essential.
Non-essential expenses should be there as a safety net to free up funds. By making these wise decisions, you are reducing debt and financial stress.
Have Insurance and a Protection Plan
Another great way to ensure you are being financially wiser, insurance is something else that you can consider. This includes your health, car, home, and life insurance. All are important to you for managing large, unexpected expenses without taking any money from your savings.
There will be times when you are involved in an accident, such as a car accident. You need to have the right insurance in place to deal with the repair costs. Furthermore, you may also be eligible for credit hire claims, which can be suitable for providing you with a replacement vehicle as your car gets repaired.
Avoid Impulsive Financial Decisions
Impulsive financial decisions can also be quite costly to your financial plans. This can lead you to take high-interest loans or even max out credit cards, which can put you in more financial trouble. Yes, they will provide you with temporary relief, but they can cause further long-term challenges.
Ensure you don’t jump into anything you won’t be able to afford and seek alternatives that won’t increase your debt. Consider payment plans or even utilising the available insurance for you.
Use A Tiered Budget Plan
A tiered budgeting approach can also be very beneficial. This is when you allocate money to your essential costs, then to your savings, and finally to your discretionary spending. This approach will make things much easier for you, and you can then allocate these funds to an emergency pot.
Prepare For Unexpected Costs
Preparing yourself for unexpected costs is the next step. This is what can cause you financial trouble if you don’t prepare for it. Put money aside for minor emergencies, so you’re ready for these surprise expenses that can appear out of nowhere.
Consider this as a small insurance; small contributions to this emergency backup will help you avoid the bigger disruptions in the future.
To Conclude
Financial freedom is something we all dream of; however, you need to take the right steps to stay financially stable. Build that emergency fund, have that savings account, cut out the unnecessary costs and make sure that you prioritise the essential fees of your life. Whether that is food, house bills or car bills, these should all be paid before anything else.
