7 Steps to Prepare Your Finances for the Unexpected
The road of life is filled with many unexpected twists and turns. And though it would be great to know exactly when you might encounter a road bump like a market downturn, unexpected job loss, or health issue it's not always possible. What is possible, though, is financially preparing for the unexpected. Here are seven steps that can help you:
- Know where you stand today. How well do you know your personal finances? Do you know if you have enough money saved to meet your life expenses? Or how much money you have in debt? Or even the interest rate on your mortgage if you have one? When it comes to your money, knowledge truly is power. So, make sure you understand your financial situation in full.
- Save, save, save. You know that piggy bank lesson your parents taught you in your youth? Well, you can still learn from it today. It's important to have money set aside for a "rainy day" also known as an emergency fund. Many experts recommend having at least 3 to 6 months of living expenses, which includes your rent/mortgage, utilities, transportation expenses, debt payments, food, and more. An emergency fund should be used only in emergencies.
- Get your debt in order. Debt happens. In fact, according to CNBC, the average American owes $90,460 in debt, which may include personal loans, mortgages, and student loans. But just because you have debt doesn't mean you can't lower the amount you have to pay each month. For example, you could consolidate higher-interest credit card debt with a balance transfer offer. Or, if you have a mortgage, you may be able to refinance to a lower rate.
- Trim your spending. One of the best ways to save money and prepare for the unexpected is to cut your spending. That involves reviewing your expenses to determine exactly where your money is going each month. Once you figure that out, look for ways to trim your budget and save more. For example, if you're spending a lot of money on online subscription services, think about reducing the number services you have.
- Plan, plan, plan. Planning is a great defense in preparing financially. For example, you can plan for holiday gift giving by setting aside money before the holiday. Or plan medical procedures in the same year, so you can meet your deductible and lower out-of-pocket expenses.
- Schedule financial checkups. Review your financial situation and plans every few months to gauge your progress and make adjustments.
- Ensure you have insurance coverage. Insurance can be a valuable tool in your financial planning that can help protect you and your loved ones from unforeseen circumstances, such as injury or death.
The power to prepare is in your control.
Though you may not be able to see what the path of life has in store for you, you can ensure your finances have you better prepared for whatever may be ahead.
Ask WashTrust! If you have more questions about planning for your future or unexpected expenses, no matter where you are in life, a Washington Trust banker can help!
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