Regardless of how well-prepared you are and how fool-proof your plan is, there’s always going to be rainy days in life. If left unabated, these emergencies can quickly snowball into more dire problems and create more financially debilitating situations, such as foreclosure of assets and bankruptcy. To help you overcome these financial troubles, below are five emergencies you should be saving up for.
If given the choice, most people would not want to take the subway or bus. A private means of transportation is, nowadays, the preferred mode of getting from Point A to Point B. If your car breaks down, however, this could mean either you go back to taking public transportation or fix it so you can get back on the road, the latter choice being more desirable. Repair costs will vary based on a handful of factors including the car make, model, and year as well as the type of service needed. Car problems extend beyond dead batteries or blown up tires. There’s brake caliper replacement, heating and cooling repairs, and so on, each costing differently to repair or replace.
Family emergencies encompass events such as your college kid needing tuition next week or medical bills incurred after an accident. Allocating a savings fund for family emergencies is key to ensuring that your family’s day-to-day lives are not interfered with, or, if so, are restored back to normal as soon as possible. The dollar amount of your savings fund allocated to family emergencies will depend on family size, living conditions, and lifestyle. The two last factors will determine how prone your family is to accidents that lead to property damage and personal injuries.
Remember, your emergency funds should be shelled out only during emergencies. A home renovation that is unnecessary breaks this general rule of thumb. On the other hand, water leaking from pipelines and roof shingles falling off into your front yard are serious issues that not only reduce the property’s value but can also act as safety hazards to the property’s occupants as well as neighbors in the area. The rule is to save at least 1 percent of the property’s purchase price. So, for instance, if your home was bought at $250,000, your budget for home maintenance should be $2,500 per year.
Your primary source of income can vanish into thin air within a week or two week’s notice. Layoffs can happen abruptly. Unfortunately, bills will keep flowing from month to month. And since it’s unlikely you’ll find new work to replace your primary source of income in a matter of a month, you’ll want to save up for such an unfortunate event. Determine how much you and your family needs to live off of per month then try to save up for at least three times that amount. This means that if you are laid off from work, you’ll have three months of space to find new work without resorting to daily showers at your local YMCA gym or eating with packets of ketchup as your main flavor.
Although it’s not exactly an emergency since you’ll have several decades before it comes, seldom people prepare for it, at least adequately. Retirement should be prepared for by opting for retirement plans that give you tax benefits or even free cash, such as a 401(k) or Roth IRA. You should also set up individual trading accounts from which you can invest in stocks, bonds, mutual funds, and the likes. Retirement life can still feel like a financial struggle you experienced in your 30s or 40s. Don’t let it ruin your retirement by adequately preparing your finances.
Saving up for an emergency can cushion the financial impact and allow you to recover more quickly. Keep in mind that these five emergencies are not the only ones you should be looking out for. These are only categories from which you should further expand your quest to a fool-proof financial plan.