Have a financial plan
The best way to give yourself a financial cushion in the event of an emergency is to plan ahead. You’ll want to have goals to drive your finances, so ask yourself what you are saving for? What do you want to achieve? What risks could come up in the future that are driving your savings? Once you’ve got the answers to these questions, you can then put your plan into writing and work out how you’re going to become financially resilient.
Build an emergency fund
If you lost your job tomorrow, would you have enough in savings to get by until you picked up work again? It’s a confronting thought, and that’s why an emergency fund is essential. An emergency fund is a cushion of savings left untouched to help you in the event of an emergency. For an emergency fund, it’s recommended that you set aside the equivalent of three months savings available as a buffer. This should be enough money to cover 3 months of everyday expenses like rent or mortgage payments, food, and household bills.
Review your spending behaviour
Everyone makes incidental purchases, but when these start to form a larger part of your spending habits, they can eat into your savings. In the event of an emergency, your priorities will shift to paying for the essentials such as your mortgage, bills and groceries. Reviewing and changing your spending behaviour now will help you be prepared in the case of an emergency, and any money you save can be put towards building your emergency fund.
Reduce or eliminate your debt
Purchases made on a credit are not assets that you own, they are debts that must be paid off. As such, they can become a financial risk if your income is reduced, or you lose your job. With that in mind, it’s wise to assess your current debts and work towards paying off the largest ones first. This will ultimately reduce stress if an emergency were to occur, and you’ll save money be reducing the amount of interest and fees owing.
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