Every day, individuals experience a financial set back that costs them hundreds to thousands of dollars. Whether it is an unexpected medical emergency, a substantial home repair, or an abrupt loss of income, emergencies of the financial kind take a toll. While it is impossible to know what is coming in the future, it is feasible to plan for the unknown. To ensure a financial disaster doesn’t cause turmoil in your life, here are a few financial planning tips for the unknown.
3 Financial Planning Tips For The Unknown
#1. Know Your Options For Credit
Preparing for the unknown starts with understanding your options when it comes to financing strategies. Personal loans offer a lump sum of cash in exchange for committing to pay a fixed, monthly payment for a period of time. However, personal loans often require strong credit history, verifiable income, and in some cases, collateral to get approved.
An alternative to a personal loan is a title loan – as explained by Family Title Loans – a strategy that allows you to use your clear car title as collateral for a fast cash loan. No credit check is required, and the process can be quick and simple.
Another option is using credit cards for unexpected emergencies, but similar to personal loans, most card issuers require strong credit to qualify.
#2. Save For The Unexpected
Instead of leaning on credit for a financial emergency, many opt to save each month into an emergency savings account. Financial experts suggest setting aside a minimum of three months worth of expenses into a liquid (meaning easily accessible) account. This can take some time to build up, but having access to your own funds when the unexpected strikes is the smartest way to plan for the unknown.
Savings set aside for an emergency account can earn interest, with the highest rates available through high-yield savings options from various banks and credit unions.
#3. Transfer Your Risk
One of the most overlooked strategies to plan for the unexpected is the transfer of risk to a third party. Financial losses can come in a myriad of forms, including a long-term disability, the loss of life of a spouse, a car accident, or a disaster in the home. Each of these unfortunate events can be covered by an insurance policy.
With insurance coverage, the owner of the policy pays a set premium to an insurance company which promises to pay for all or a portion of the costs associated with a specific event. For instance, a long-term disability policy pays a percentage of your earned income in the event you are disabled and can no longer work.
A homeowner’s insurance policy or renter’s insurance policy protects your belongings and the structure of your home should a fire, break-in, or another disaster strike. Often, the cost of buying insurance is far less than the price of rebuilding your financial life after one of these events takes place.
None of us can know for certain what lies ahead, but taking the time to understand your options for credit, savings, and insurance help reduce the risk of financial disaster in the future. And by reducing the risk, you ensure you keep more of your money and allow it to grow, creating financial security along the way.
Hi, my name is Jon and I run Compounding Pennies. I’ve been interested in personal finance since high school and love writing and talking about it. You can learn more about me in the Authors section of this site.