However settled you feel financially, you must always be prepared to deal with the unexpected. Though you might have your savings sorted and your investments working hard, you need to ensure that should anything go wrong, you have the financial flexibility to minimize the impact.
Having the right financial backups is often a case of working out what is right for your financial situation but no matter who you are and what your current position is, you should have insurance and an emergency.
Insurance is the best way to limit the financial impact of accidents and mishaps. From the home insurance that will protect you financially should your home burn down (for example) to the life insurance that will protect your family should you die unexpectedly, insurance is a relatively cheap form of investment. Although it has to be said, we all hope that you won’t have to cash it!
There are all kinds of financial implications that come from accidents. For example, if you were to get injured, you may have to take time off work, pay for your medical bills and even modify your home. Though a personal injury lawyer is a really good idea in this situation, your insurer will be able to give you the money you need as soon as possible.
When you are choosing the kind of insurance you want, you should consider what your needs are. People take out all kinds of weird insurance policies from insuring themselves against alien abduction to wedding insurance protecting against a ‘change of heart’. When you are choosing your insurance, you should think about the risk involved and the potential consequences of that risk factor. So, though you may have a small risk of dying unexpectedly, the consequences are huge and therefore insurance could be a good idea.
An emergency fund is essentially a pile of savings that you don’t touch unless you absolutely have to. Different people have different ideas of how much this sum should be but in general, an emergency fund should be around 3 times your average monthly salary. This amount of money is a good safety net to have to protect yourself and your family in case you are made redundant or another unfortunate event occurs.
Saving up for an emergency fund will take some time but it is worth your effort. It is possible to save up by simply cutting some of your living costs and saving any windfalls you may have but having a more concrete savings plan will help. Putting aside a small percentage of your monthly wage is a good method for building an emergency fund.
As you build your emergency fund, it is important that you don’t put your finances under any strain. The whole point of building this fund is to give you a safety net, not to push you towards a meltdown!
Having these financial backups in place will offer you a greater sense of security and give you a brilliant foundation for achieving your other financial goals.