How to Prepare for Unexpected Expenses This Year
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Sooner or later everyone will encounter an emergency expense. Having to deal with unforeseen financial situations will eventually happen. You should try to avoid unexpected expenses by being mindful of situations or problems that could cost you money. The following information will explain how to be prepared for any unexpected expenses that happen during the current year.
Create an Emergency Fund and Don’t use it for Spending
CNN Money strongly encourages people to create a separate savings account that no one is allowed to spend from. This account should be used exclusively for an emergency fund. The minimum amount of money that should be put into this emergency fund is $1,000. Most emergency financial situations do not cost more than $1,000. Having at least this amount stashed away will keep most people from borrowing money and going further into debt. Once you establish your $1,000 savings account you should never spend it on anything but its intended purpose.
Create a Fallback Budget that will Quickly Save you Money
Most people never heard of a fallback budget. However, this is a budgetary plan that is stripped down to the bare expenses that a person needs to live. When a person has a fallback budget, they will only pay for essential expenses such as mortgage (or rent), electricity, food and water. Other items and utilities such as gas, insurance, transportation and entertainment won’t be a factor.
A fallback budget will force a person to use public transportation to get around, use electricity to heat their home and have them taking multiple trips to the library or park for entertainment. Some people might even say this is how poor people live. While this type of financial strategy is not for everyone it could be the solution for some people when they fall on hard financial times.
Establish Special Benefit Plans for your Family
Having a cash-option life insurance policy or a retirement plan that you can dip into at certain times of the year can also come in handy. These financial vehicles can provide benefits that can give you some cash when you suddenly encounter a problem. The key to using this type of financial assistance is not to make early withdrawals to avoid penalties. Sometimes, to get out of a financial bind you will have to be penalized to get the money you need. If you set up a cash back insurance policy or a retirement plan, make sure that you are able to borrow from it when you need to really use the money. Talk to car accident lawyers and other financial professionals to get these plans in place and make the best decision for you.
Emma Sturgis is a freelance writer based out of Boston, MA. She writes most often on health and education. When not writing, she enjoys reading and watching film noir. Say hi on Twitter @EmmaSturgis2
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