How To Be Financially Prepared
09/04/2024
How To Be Financially Prepared
In honor of National Preparedness Month, we wanted to discuss what it means to be financially “prepared.” Millions of Americans every year face hardship because of a loss of income, natural disaster, or other unexpected loss. Keep reading for ways to make sure you and your family are prepared!
Being financially prepared simply means being able to start recovery from hardship as quickly as possible. These hardships could be loss of income, natural disaster, health changes, et cetera. When these difficulties hit us unexpectedly, it can often leave people wondering how to recover and maybe wondering what they could have done to lessen negative effects.
The best way to hit the ground running after financial hardship is to already have a plan in place. You cannot plan for everything, but you can be safe in the knowledge that you have started your financial preparedness journey! Below are some helpful tips on being financially prepared.
- Savings
Savings are what many Americans think of when they imagine how they will deal with financial hardship – and they are an excellent start. Savings accounts are great places to store funds, as they often accrue interest unlike most checking accounts. How much you set aside for savings each month will depend entirely upon your budget and no amount is too small.
- Compile Important Financial Documents
In the event of a natural or personal disaster, it is important to make sure you will still have access to your financial documents. This may include things like photo IDs, birth certificates, social security cards, house payments, insurance policies, sources of income, and tax statements. While you may choose to keep these in an easily accessible binder, it may also be a good idea to keep these files on a secure digital cloud. That way, in the event of fire or other disaster, you can access them anywhere, anytime.
- Build an Emergency Fund
Building an emergency fund is much like savings, but it is more geared towards loss of housing, accidents, et cetera. Unlike savings, which should cover around six months of expenses, emergency funds should be calculated based on the maximum out of pocket for insurance claims and other things that may require a lump sum. You may even choose to keep part of this emergency fund in cash. Small bills are extremely helpful in natural disasters in case you need to pay for things like food if the power goes out.
- Pay Down Debt
Paying down debt while you can is an excellent way to lessen the financial burden in the case of hardship. While some loans may offer a forbearance or deferment period that you can use in emergencies, you will want to be familiar with the terms and conditions. Debts that do not qualify for deferment or forbearance should be a priority; however, make sure you are familiar with possible early pay-off fees or other associated costs.
- Create a Plan for Known or Unknown Expenses
Lastly, creating a simple plan for how to deal with expenses that come up can take a lot of stress away in times of financial woe. Always having an up-to-date budget on hand is an excellent way to simply feel in control of your finances. Categorize things into necessities and wants. Code things based on priority and have a plan on how to increase income or decrease expenses “just in case.”
It is easy to start feeling like your finances are getting out of control when hardship hits. However, being financially prepared can greatly reduce stress and help jumpstart the recovery process. The Savings Bank is always here if you have any questions about how our accounts or loans can help you on your way to financial recovery.
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