In life, one must learn to expect the unexpected. Things seldom go as planned, and disruptions like medical emergencies, job losses, and vehicle breakdowns can happen without warning.
Imagine if even one such event were to knock down your finances like a pack of cards. Well, it can if you’re unprepared to handle the unexpected. While consistent savings seem obvious, it’s often the underrated budgeting strategies that make the biggest difference when life turns upside down.
Want to know them so you can not only handle the worst but also protect your finances in the process? This article will share three underrated budgeting hacks that will help you keep your finances on solid ground as you face the unexpected.
Grow an Emergency Fund (And Keep it Untouched)
Consider an emergency fund as a financial first-aid kit. It is not a nice-to-have, but a must-have for anyone who wants to weather financial storms without derailing their budget.
An emergency fund is a dedicated savings account meant to cover unplanned, essential expenses. What would that include? Expenses like sudden medical bills, urgent home maintenance, job loss, or car repairs.
The shocking thing is that one in five Americans has no emergency savings. In a recent survey, 37% of the respondents said that they can’t afford an expense over $400. Though most know why an emergency fund is a priority, high inflation is keeping them from building one.
The problem is valid, but it only underscores the importance of an emergency fund. So, how to build one in this economy? Here are some practical ways:
- Open a separate savings account and make small, regular contributions.
- Cut all hidden and flexible expenses first. Examples would include unused subscriptions, impulse purchases, and takeouts.
- Boost your income in little ways like getting a side gig, selling unused items, or offering skills-based services in your community.
- Direct any unexpected money, like tax refunds or rebates, to the emergency fund account.
- Park your emergency fund wisely, such as in a high-yield savings account.
- Make sustainable tweaks to your spending behavior, such as carpooling or choosing low-cost entertainment options.
How much should an emergency fund hold? Ideally, at least three to six months’ worth of living expenses. As you build this fund, don’t forget the ‘keep it untouched’ rule.
The money stored in this fund is for real emergencies, not impulse buys or vacations. Before withdrawing any amount, ask yourself whether the expense is unexpected, urgent, and necessary.
Without an emergency fund, any unforeseen cost leaves you vulnerable to a major financial crisis. You’re likely to max out credit cards or take on high-interest debt. With an emergency fund, you can stay in control of your budget and protect your long-term financial goals.
Know Where to Turn for Professional Help When Needed
Most emergencies or unexpected events come with high financial and emotional stakes. A single uninformed decision can prove to be too costly. Having a list of trusted professionals means:
- You can act promptly during a crisis
- You avoid expensive mistakes
- You stay in control of your finances
Let’s understand this using a few examples. Consider someone working in a shared office space in Bakersfield, California. This city was ranked first in terms of America’s most germ-prone cities. A simple flu could quickly turn into influenza or bronchitis, requiring weeks to recover.
Bills would pile up, besides the usual obligations. Then, there would be a loss of income during the recovery period. That’s when professionals like insurance advisors and financial planners can help with budgeting, finding better coverage, and setting long-term goals.
Another example could be someone who got involved in a road accident in Edwardsville, Illinois. As a thriving college town and regional hub, both minor and major accidents are common here. In such emergencies, one requires another set of professionals, namely, attorneys for fair compensation.
An Edwardsville personal injury lawyer will not only investigate the case but also negotiate with insurance agents. If needed, they will advocate for the victim in court.
The most important thing is that some lawyers charge fees on a contingency basis. According to TorHoerman Law, this means no fee is charged unless the case is resolved successfully. This allows victims to seek compensation without any worry of upfront costs.
How would that benefit someone’s finances?
- They wouldn’t need to dip into their emergency fund.
- They won’t have to take out a high-interest debt.
- They won’t have to deviate from their regular bill payments and budgeting.
These examples are meant to reinforce the importance of having the contact info of different professionals. To sum up, you can rely on professionals like financial advisors, attorneys, insurance agents, auto mechanics, home repair specialists, and tax professionals.
Build Flexibility Into Your Budget
Most people prepare tight budgets where only the essentials are accounted for: rent, utilities, groceries, and transportation. That’s an ideal, but real-life budgets require breathing room to handle surprises.
This is where the importance of building flexibility into your spending plan comes in. It will help you absorb financial shocks without disrupting your overall money situation.
Last year, 37% of Americans had to tap into their emergency fund at some point. Out of those, nearly 80% did so for unplanned expenses and even day-to-day needs/bills. A reason why this happened is that their budget was not designed to be flexible.
The question is how to create such a flexible budget. Here are some effective ways you can:
- If you consistently spend less on entertainment or dining out, let the balance roll over to the next month.
- Always prioritize needs over wants, so the latter can be temporarily paused when unexpected costs rise.
- Plan for predictable surprises, like car maintenance, holiday gifts, and insurance premiums.
- Stay agile with smart applications that help you track your spending and make adjustments as needed.
- Review insurance policies periodically to ensure they continue to meet your needs. Updating coverage can also prevent out-of-pocket expenses during emergencies.
Keep in mind that flexibility helps build resilience. It’s not about being loose with money, but being smart and prepared. As your finances get room to breathe, you can stay in control of them even when life throws you a curveball.
Based on the tips we’ve discussed, what assessment have you made of your current finances? Apply each tip accordingly to stay prepared for the unforeseen.
In the world of finance, flashy advice often steals the spotlight. Investing in stocks and building passive income streams is important, but not more than the day-to-day financial habits that determine stability.
The above-mentioned three strategies may not make headlines or feel exciting, but that’s exactly what makes them underrated financial power moves. They will work quietly in the background, until the moment you need them.
