By definition, emergencies and accidents are unavoidable. Sudden hospitalizations are huge expenses that come out of nowhere. Moreover, unemployment often occurs with little to no warning, especially during pandemics like COVID-19.
The unexpected pandemic brought severe consequences to many people’s lives worldwide. Even two years into the pandemic, the reported that millions were still unemployed. The crisis didn’t stop there, thanks to subsequent geopolitical instabilities that disrupted supply chains, crippling the world market and economy.
That said, emergencies and unforeseen circumstances can drag your family finances down, especially if you live paycheck to paycheck. Fortunately, specific measures can keep them secure during these uncertain times. Read this article to know what you can do to secure your finances.
6 Effective Ways to Secure Your Family Finances
While current events affect families worldwide, you can still keep yours financially secure. Creating a financial safety net from scratch nowadays may seem impossible. However, you can prepare for any unexpected expenses that may come your way with the following approaches.
1. Create a budget
The first step to any financial plan is to develop a budget. It involves categorizing every cent you have to help you track incoming cash flow and eliminate the question, “Where did my money go?”
If it’s your first time budgeting, consider using the 50/30/20 rule. This rule involves allotting 50% of your net income to needs, 30% to wants, and 20% to savings and debt repayment. It’s not a hard-and-fast rule. So you can adjust the proportions according to your situation. For instance, you may increase its percentage to achieve your goal immediately if you need to prioritize debt repayment.
Budgets ultimately help you stay committed to your goals. Being able to allocate funds faithfully means you’re ready for more complex financial decisions that can keep your money safe from unexpected expenses.
2. Build an emergency fund
Building an emergency fund is an effective way to prepare for unpredictable occurrences. A well-rounded fund gives you enough money to spend in case of emergencies, such as sudden hospital visits, economic downturns, and unemployment. Moreover, it keeps you from dipping into your savings whenever you need instant cash.
Remember, your emergency fund must be large enough to support your family without a constant income. A rule of thumb is to set aside at least six months’ worth of your family’s necessary expenses, like rent, bills, food, and debt repayments. However, it’s better to save for longer, given the world’s experience with two years of back-to-back lockdowns.
Read: How To Have A Passive Income Stream
3. Avoid unnecessary expenses
Irresponsible spending is a surefire way to waste money during these economic difficulties. If you want to prepare for unexpected costs, maximize your savings and significantly reduce unnecessary spending. These non-necessities may include subscriptions, impulse purchases, and eating out.
For starters, check your budgets and reflect on your past month’s expenses. Identify costs you can live without and take measures to minimize or eliminate them from your lifestyle.
Take, for example, constantly eating out. Eating out can be costly and unnecessary. In fact, Globe Newswire reports that 30% of consumers spend $180 on restaurants weekly—that’s close to a thousand dollars per month! So, minimize your food expenses by cooking meals at home instead.
4. Minimize debts
Another unnecessary expense you may have is debt. Failing to pay debts on time accrues interest, which is usually expensive, depending on the lender. And the longer you have loans, the more interest payments accumulate. In turn, you’ll have a reduced cash flow that prevents you from maximizing your savings, especially when you need it most.
Try and do your best to pay off your loans faster. Eliminate them as quickly as you can. Doing so frees up your obligations, saving you more money for emergencies. Moreover, paying debts on time and in full improves your credit score, which opens up doors for more financial opportunities to boost your savings.
5. Leverage investments
Setting aside a fraction of your monthly income is an excellent way to build wealth and secure your family’s finances. However, you can achieve your goals faster by putting your money to work through investments. Doing so provides passive income, growing your savings more efficiently than leaving them stagnant in a bank.
Remember, investing is risky since you may not recover some of your invested money due to losses. Fortunately, there are multitudes of investment options to choose from, with varying degrees of risks that may suit your needs.
For instance, bonds, stocks, and real estate are highly volatile investments. In simpler terms, there’s a greater risk of losing money. However, it also means you can earn higher returns. On the other hand, mutual funds and high-yield savings accounts are less risky options but provide relatively low returns.
When choosing an investment option, your risk appetite is a critical consideration. That said, making your money work is an excellent approach to boosting your savings.
6. Get insurance
Insurance is an effective way to secure your finances for more comprehensive protection during unexpected events. It transfers the risk of financial loss during medical emergencies, calamities, and death to the insurance company, which covers losses you may incur.
Many insurance policies are available on the market, with coverages depending on what you need. For instance, consider getting home insurance if you’re in a location prone to calamities. The insurance company pays for repairs whenever a storm or earthquake damages your house, keeping you from dipping into your savings.
Health insurance is also helpful for medical conditions and emergencies, especially for families with sick or elderly members. It covers the costs of medications, check-ups, laboratory tests, and emergency room visits. This way, you can focus on building wealth instead of settling medical bills.
Protect Your Family with Sound Financial Planning
Families worldwide had to endure financial difficulties over the past few years as the pandemic and subsequent recession crippled economies and raised prices. In turn, even the most essential commodities and services were unaffordable to many.
Learning from these experiences is critical. The world is returning to normality. Reflecting on the gaps in your financial management is the best way to keep them from happening to you and your loved ones again. Be smart about financial planning and management to secure your family’s well-being no matter what the future may bring.
