As you make your future plans, you should also plan for the unexpected. A sudden change in your life—injury, illness, or loss of a job—can leave you financially drained and struggling to make ends meet. But, you can lessen the impact on your finances if you prepare.
Make Sure You Have a Cash Reserve
Bills don’t stop coming in just because you’re out of work or your income has been reduced. That’s why it’s important to begin building a cash reserve early and tending to it as the years go on. Experts recommend that you should have the equivalent of 6 months of wages in an accessible savings account. This should be separate from your retirement account.
You can use this savings for monthly bills if something should happen and you can’t work. In addition, this account can pay for those emergency expenses that happen suddenly, such as replacing broken household appliances or paying for car repairs.
Buy Insurance
About a quarter of adults will become disabled before retirement. It’s not something you like to think about, but nevertheless, you should be prepared. Insurance can help you stay financially secure, whether your disability is temporary or permanent.
The two types of disability insurance are short-term and long-term. Short-term disability pays you income in case injury or illness keeps you away from work for a few months. Long-term disability applies for longer periods. Both may be available through your employer but can be purchased independently.
Keep Debt Manageable
Your emergency funds will last longer if you keep your debt to a minimum. While you may not be able to eliminate your mortgage or car payment, you can reduce what you owe in terms of consumer debt. Credit cards have high interest rates that can add up.
Work now to reduce your debt by paying down your credit cards using the snowball method, where you work on paying off the cards with the highest interest rate. Then, make a budget and stick to it. Avoid charging any more than you can pay off in a month.
Nobody wants to think about losing a job or worse, but it’s a possibility everyone should prepare for. This is especially the case with your finances. A combination of savings, insurance, and manageable debt will put you in a position to rebound after a negative life event sets you back.
Check out this article on investments that can provide safety to your portfolio!
