No matter where you are in life, if you’re just starting out on your own or if you’re nearing retirement, you know the importance of a budget. It helps you spend your money where it’s needed. Sometimes unexpected things happen. You need to have certain safety nets built in to your budget to help prepare you for whatever happens next in life.
You can plan and plan, but if you don’t have just-in-case money set aside your plans can get derailed in the blink of an eye. Also, if you haven’t researched insurance wherever you live, you might get an unexpected and unwanted surprise. There are three important safety nets that you need to consider using—emergency fund, goal saving, and insurance.
Putting Together an Emergency Fund
It’s a well-known fact that surprises happen. Your car gets towed. You get asked to be in a friend’s wedding party. A loved one dies, and you have to get a last minute plane ticket. Your work pants get a big hole at the seam. The list could go on and on and on because that’s life—one big surprise. You can’t budget for everything, but what you can do is set up an emergency fund.
An emergency fund is a sum of money that you can use when the unexpected happens. This savings allows you to leave your retirement fund alone when a surprise pops up. Having an emergency fund means you don’t have to put everything on your credit card. An emergency fund gets you one step closer to being financially prepared for what life throws at you.
Saving with Goals in Mind
Saving for a goal means that you don’t necessarily have to use your emergency fund for things that you knew about in advance. When you start thinking about buying a new car, you can start saving a little to prepare yourself for that. If you have a family trip coming up, you can start putting some money aside to buy your ticket.
This is similar to an emergency savings, but you already know how you’re going to spend it. This helps you start to save for those big expenses you know are in your future, so that way you can still have an emergency fund for emergencies.
Having insurance is sometimes overlooked. You might think that you won’t get in an accident, or if you do, you can use your emergency fund. That’s what it’s there for, right? Emergencies, like car accidents or home break ins. Well, that’s not exactly it. Insurance is that extra padding to help so you can use your emergency money for things that insurance doesn’t cover. You have to make sure to get the right insurance. It varies from state to state, so you have to do research and get the right stuff. Nashville insurance might be different than the insurance you need in Los Angeles.
It’s important to have insurance because it transfers the risk from you. Your emergency fund probably won’t be big enough to replace a house, but an insurance policy can help cover those expenses. Insurance also helps with medical costs, and it can help protect your family if something should happen to you. Being insured ensures that your money will go where you need it.
Preparing for Life
Using these budget safety nets, you can start to prepare yourself for financial security. When you have all of these in place you’ll feel ready for whatever life has in store for you.