Despite all of the planning and preparation, something will inevitably go wrong. Your dishwasher may break. Your car may need repairs. A health emergency may arise. Life happens, and sooner or later you’ll be faced with an unexpected expense. That’s why it’s so important to have a financial backup plan ready in case a risk turns into reality.
Here are a few tips to help you get started when you are hit with the unexpected:
- Plan if you can. You may be able to predict the future with a quick look back in time. Review last year’s expenses and flag any transactions that were out of the norm. Build those expenses into your current budget. We recommend having at least $1,000 in an emergency savings account to use in times of emergency. Use our free online calculator to estimate how much you should save based on your financials.
- Think before you react. Is the new cost a need or can it wait until the next payday? What are your options for getting the extra cash you need now? Slowing down and thinking through your options may provide a better solution.
- Don’t neglect your credit. Even with your emergency fund (if you don’t have one it’s never too late to start!), you may need more cash. It’s moments like these where you’ll thank yourself for preserving your credit. If you need to borrow, good credit will help you get a better interest rate. Learn how to check your credit score.
- Put tools in your toolbox. When you’re facing an unexpected cost, reach into your financial toolbox and pull out the tool that’ll solve the problem. For many, that tool is a Home Equity Line of Credit (HELOC). A home equity line of credit is continually reusable and has an interest-only minimum payment. It’s a great solution for a short-term financial need if you have a plan in place to manage payments. Remember: Don’t take out more debt if you’re already struggling with debt.
- Reflect on your goals. When you begin to make meaningful changes to your finances, it’s easy to go all in and start off too aggressively. Like deciding you are going to save 50% of our income each month, never go out to eat again, and cut up all our credit cards. While this ambition is admirable, you may not be able to keep up the pace. Make sure your goals are realistic and leave room for important things like emergency savings. After all, what good does it do to make a bunch of financial changes that only last a few weeks?
- Take inventory. One way to avoid unplanned expenses is to be stay one step ahead. Take inventory of the large, costly items you own (like your furnace, water heater, car, washing machine, etc.). When do you suspect those items will need repair or maintenance? Turn those unexpected events into planned-for expenses that are accounted for in your budget.
Let us help. One of the biggest benefits of being an Alltru member is that we’re on your side and here to help you through life’s unexpected and planned events. Take the next step and contact us for more information. We can help!
Until next time,