Sometimes the unexpected happens and it can throw our finances into disarray. Your car may break down with warning and need costly repairs or a sick bug may prevent you working for several weeks causing you to lose out on income. Most people turn to loans when faced with these situations – however there can be other ways of funding the unexpected. Here are just a few ways to financially plan for life’s curveballs.
Start a rainy day fund
A rainy day fund is a savings account reserved for emergency costs. This can give you money to dip into when disaster strikes, saving you from having to reach for a loan. Make sure that these savings are only used for unexpected costs and not personal luxuries or planned expenses. As soon as you take out money, make it your mission to top up the fund again as quickly as possible so that there’s always money there to rely on.
Insurance can be another way of paying for unexpected costs. By paying a small amount each month to an insurer, they will pay for any surprise costs. This can be useful with big surprise expenses such as vet bills (as covered by pet insurance) or funeral costs (as covered by life insurance). There are lots of different schemes that you can take out and rates can vary from insurer to insurer. Do your research to determine whether insurance is worthwhile for you and if so work out what the cheapest deal you can get is.
Set up backup income streams
Having other income streams can protect you if you’re unable to work for a certain period of time, allowing some money to still come flowing in. Sometimes known as ‘passive incomes’, such income streams should be things that require minimal effort allowing you to essentially make money without working. This could include investing in property or peer-to-peer loans or building revenue from a hobby.
Talk to a financial advisor
Talking to a financial advisor could also be worthwhile when planning for the unexpected. You may be able to get help with risk management, allowing you to make calculated decisions as to where to invest your money or which insurance schemes to take out. Other advisors may also be able to potentially save you money in the long run such as property surveyors when buying a home or loan brokers when taking out a loan.
Invest in preventative measures
You may also be able to spend your money on preventative measures to reduce risk and prevent possible future disasters. Certain preventative measures such as a burglar alarm could even save you money on insurance. You can’t protect yourself from every threat, but by taking some precautions you can lower the chance of something bad happening.