by Anza Goodbar
(last updated November 22, 2011)
A financial crisis can hit at any time with no warning. It is important to plan for your financial security by setting up an emergency fund. Most experts say you should have a minimum of 3-6 months of income set aside. If you can have a full year, that's great.
Having enough money set aside for a full year can give you peace of mind in case of a job loss or natural disaster. Being able to take care of even the most basic of needs make weathering the financial storm much easier.
Be properly insured. Carry disability insurance in case you are unable to work. It won't cover 100% of lost income, but it will supplement what you have set aside for in an emergency fund. Health insurance is a must to protect you from catastrophic health care costs in case a terminal illness strikes your family. Home owners insurance will protect in case of a fire or break in. Most importantly carry an adequate amount of life insurance to protect your family in case of an untimely death.
It takes time to build up the reserves to protect your family. Take time each month to set aside funds for this purpose, aside from other savings accounts. You must be intentional about planning for emergencies, the more resources you have set aside the more security your family will have should a crisis hit.
Should a crisis hit, if you do not have a three-to-six-month reserve account, you will need to prioritize your expenses. Some things like housing costs are essential; some things are luxuries like cable and internet. Make a short term plan to cut out all excess and establish a new budget to live within your current means. Contact creditors right away regarding your crisis and see what relief they may offer you so you don't damage your credit rating. Some financial institutions can lower interest rates of push a payment or tow to the end of the loan to give temporary relieve. Preventing further financial setbacks will reduce the stress of the situation.
Try not to incur additional credit-card debt; however this may be the only option available at the time. Keep it to a minimum and try to pay off the balance each month. Keep credit cards with a high balance set aside for this kind of occasion, but do not use it if an emergency doesn't arise.
By planning ahead for a potential crisis you will be able to remain cool, calm and collected. Work the plan and make changes as the situation unfolds. Making necessary arrangements to cover your financial obligations in a proactive manner and you will get through the crisis.
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