Five ways to prepare for a financial emergency before it strikes
Hopefully you'll never experience a financial emergency, but it's not a risk one can afford to ignore. Here are five steps that can help you plan ahead for a fiscal crisis.
1. Know which expenses you can cut
Emergencies demand quick responses. But when you're in the midst of a crisis, it can be hard to think clearly about which costs you can afford to trim.
Having a list prepared ahead of time can make important decisions easier.
Think about which living expenses you could slash quickly to aid your financial survival. Your contingency plans could include dropping your gym membership, skipping your daily latte and avoiding Friday night take-outs.
Culling small costs will only go so far. It can pay to think much bigger. Replacing your car with a cheaper model, for instance, could offer a bigger financial lifeline.
2. Start to build savings now
In a crisis every penny counts, and there's often nothing like an emergency to make us appreciate the value of savings.
But why wait for crunch time? Start sweating the small stuff today to grow a pool of emergency money.
Cutting back on unnecessary purchases, especially small buys that add up over time, can be the key to growing savings. Make savings easy by setting up an automatic transfer of funds from your everyday account into a high-interest savings account.
Importantly, look for a savings account that doesn't allow ATM access. That way you won't be tempted to dip into your emergency funds.
3. Keep short-term cash accessible
In a crisis, you need cash fast. Think about the best place to store your cash so that it's earning a healthy return while still being available when the money is needed.
Ideally, aim to have enough cash in your savings account to cover several months' essential expenses.
4. Get your partner onboard
One in two Australian couples admit to disagreeing about money 1. Yet working from the same page can be critical to helping you survive an emergency.
If you're in a relationship, it's worth taking the time to discuss emergency plans and arrive at a strategy you both agree on. Even a minor crisis has the potential to become a full-blown emergency if you're not working as a team.
5. Know who to talk to
A problem shared is a problem solved. When a crisis strikes, make your lender a first port of call. It's in their interest to help you renegotiate a payment plan.
Keep the relevant contact details of your lender handy. Their sympathetic ear could help you find a path through a crisis until you're back enjoying smooth financial sailing.
1 https://www.finder.com.au/press-release-jul-2017-heated-conversations-1-in-2-aussie-couples-argue-about-finances - Accessed 27 February 2019.
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