Life happens. From the unanticipated broken arm and resulting medical expenses, to a flat tire or water heater bursting, life is filled with unexpected events and expenses. While you can’t always plan for the bumps in the road, it’s important to at least be prepared for the unexpected—financially and otherwise.
Build Up an Emergency Fund
One thing’s for certain, you can’t predict unexpected expenses, but you can prepare for them. One of the best ways to plan for life’s surprises is to put money aside for unexpected expenses or events. If the thought of a surprise bill gives you shivers, you’re not alone. Six in ten Americans don’t have enough savings to cover a $500 or $1,000 emergency.
Without enough savings to cover the expenses that come with unexpected events, it can be easy to rely on credit cards to make ends meet. But that’s not the only reason an emergency fund is crucial—it can also help keep you afloat if you suddenly lose your job or need to take unpaid time off work.
Ideally, it should be used to cover the out-of-ordinary expenses, keeping you out of debt and your phone number out of the hands of creditors.
As you’re building your emergency fund, aim to have anywhere from three to six months worth of living expenses. If you’re just getting started, it could be worth starting your fund with a small windfall, like a tax return, a bonus from work, or even that check you grandma wrote you for your birthday.
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An emergency fund is supposed to help you be prepared for unexpected expenses or events, so it should be kept “liquid.” Typically, people save their emergency funds in an FDIC-insured savings account, so they can easily access the money whenever they need to.
When you’ve established a small base for your emergency fund, you can then set up automatic deposits to the account. Even contributing $50 a week can help keep your head above water when a financial emergency strikes.
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Create a Backup Budget
You may have a budget set up for your current financial situation, one that is designed so you can cover your living expenses, save for the future, and still have a little money left over for spending. But it could be worthwhile to set up a backup budget you could rely on should any drastic changes occur.
One way to set up your emergency budget is to start with your take-home pay, subtract any money you’re already saving, and subtract the money you don’t need to spend. What’s left are your monthly expenses.
This method gives you the opportunity to see what spending you can live without, which can help prepare you for unexpected events or expenses in the future. If you’re trying to build your emergency fund it could show you what expenses you could cut out of your budget now and start weaving into your safety net.
Another exercise is to try living with less—for one week try living on the money you’d get if you filed for unemployment in your state .
Plan for Natural Disasters
Mother Nature is unpredictable—no matter how hard we try we can’t plan the weather. And often, even meteorologists get it wrong. When it comes to day to day, that’s usually not too much of a big deal. But then there are bigger, more impactful natural disasters like earthquakes, hurricanes, tornados, snow storms, landslides, tsunamis, wildfires—that can all wreak havoc.
The type of natural disaster you’re preparing for will depend on where you live, but regardless of your location, it’s smart to plan ahead. You should have an emergency kit set up in your home.
If possible it’s also advisable to have a small kit set up at your office and in your car. That’s the thing with a natural disaster, you never know when it will strike or where you’ll be. Having the minimum prepared in a few locations can help make sure you’re prepared in the event of an emergency.
For your at-home emergency kit plan on having water (at least one gallon per person for three days) and food (at least a three-day supply of non-perishable food, and a can opener).
You’ll also want to stock up on items including flashlights, first-aid supplies, extra batteries, a whistle to signal for help, dust masks to help filter contaminated air, and moist towelettes, garbage bags, and plastic ties for personal sanitation.
It’s also worth having a battery-powered or hand-crank radio on hand so you can stay informed in the event of an emergency. If you or anyone in your family requires medication or prescriptions it’s worth keeping some in the emergency kit as well. And it doesn’t hurt to have a bit of cash stocked away for an emergency as well. This could be helpful if you’re unable to access your money online or via an ATM immediately following a natural disaster.
Make Sure You Are Covered by Insurance
Another tool to help you be prepared for the unexpected? Insurance. Make sure you have adequate health insurance and home (or renter’s) insurance. While these costs may add an extra bill to your monthly expenses, having the appropriate coverage for your needs may help save you in the long run.
It’s easy to gamble with health insurance coverage when you’re young and feel that you’re healthy and might not need it. But accidents happen all the time, and medical bills can pile up quickly. It only takes one accident or serious illness and you could find yourself buried in debt.
It may also be worth obtaining life insurance for your family our spouse (if you’re married), especially if you have kids. The goal of life insurance is to provide your family with enough money to pay off any debt and live comfortably after you pass away.
Need Advice on Preparing for The Unexpected?
Sometimes making sure you’re ready for an emergency means consulting with a professional for help. At SoFi, we’ve got you covered. As a SoFi member, you’ll have access to our team of financial professionals ready to help you build your financial plan so you can save for the unexpected expenses the future may hold.
Because if anything’s certain, the only way to be prepared for an unexpected expense is to plan for it. With SoFi Checking and Savings® you can track your weekly spending in the app. With a checking and savings account with SoFi, you can easily create different vaults within your one account for different savings goals (like an emergency fund).
Plus, SoFi Checking and Savings has no account fees (subject to change), which means no transaction fees, monthly fees, or many other common types of fees. Get started with SoFi Checking and Savings today!
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