2020 was a year full of surprises. And not the good ones either in so far as money is concerned. The unexpected pandemic strained the global economy and definitely you and me. This unexpected phenomenon has challenged us in terms of how we prepare for unexpected events.
In short, nothing is more guaranteed than the unexpected!
The covid and post covid era confirms that unexpected events will definitely come. Failing to plan can imperil your ability to reach your near- and long-term financial goals.
Unexpected expenses come in all shapes and forms. They range from unexpected medical bills, funeral expenses, helping out family members, car and other machinery repair or replacement costs amongst many others. What makes them unexpected you ask? Well, unexpected expenses are usually unbudgeted expenses that you would most often not be settling on a regular basis. Also the fact that you will not see the bill coming, makes it unexpected.
Planning for these expenses requires you to examine all risks that may derail you from achieving your financial goals. Having an insurance cover for the most obvious unexpected expense – medical, education, life, personal injury– is one way to go about it.
Remember to read the fine print in your policy to ensure you cover the risk that you are exposed to adequately. Enjoying the benefits of insurance could sound very attractive however for each benefit you have to pay premiums. Granted, some of us just can afford all the coverage we would like in an ideal world. But that does not mean that we forego insurance altogether.
Remember insurance can be tailored to your budget. That said, it’s important to note that there is an advantage to getting insurance earlier than later, before a health change might make what you want more costly or impossible to get. Talk to an experienced broker or financial advisor to guide you through based on your needs and budget.
Setting up a “relax” fund – because emergency fund sounds serious – is also a good way to go. Besides covering you when something unexpected occurs, an emergency fund also gives you a sense of security. Once the emergency fund is in place, it will allow you to relax. It will give you a sense of peace, a sense of destiny with your money. It’s a huge emotional step in your financial process.
The emergency fund could be close to six months of living expenses. Keep in mind that this pile of cash is not an investment or vacation fund; it is for those unexpected events that happen in life, like car problems, house repairs or unplanned medical bills. To help save more for emergencies, you may consider shifting some non-essential current expenses to speed up the growth of your relax fund.
Finally, why don’t you find alternative sources of income to supplement your main hustle? Make sure you have money coming in from all directions. As they say, making sure your eggs aren’t all in one basket.
Image courtesy of foxbusiness.com
Irene Koskei
MSA Finance Consultant