Unexpected emergencies happen all the time, but we never think they’ll happen to us - or to our loved ones. Emergencies are stressful, and often expensive, times of life that can put an unnecessary strain on your financial and emotional life.
But it doesn’t have to be that way. Although emergencies are (almost) always a surprise, there are still ways you can financially and mentally prepare.
Planning your financial future is difficult. It requires the balance of strategy, priorities, and goals. By creating a concrete plan for your financial future, you’re setting yourself up for both short and long-term success.
If you are the planning type (like me), you love to make lists. Your organization keeps you on track and has kept everything moving forward up until this point. But when an unexpected emergency comes up, you have to be willing to deviate from your plan to accommodate your current situation.
Flexibility in your financial life is so important. Goals change, life changes, and emergencies happen. Give yourself the room you need to adjust them as you and your needs grow and evolve.
One of the best ways to be prepared for that change is to have (and regularly contribute to) an emergency savings account.
An emergency savings account is dedicated to the moments that throw a wrench into your plans. That money is there if your roof starts leaking, a pipe burst, or if you or a family member need unexpected medical care.
Your emergency savings should be reserved only for emergencies and will help you feel better about adjusting your financial priorities because there are already some funds to help you out. It can be so easy to forget to contribute to this fund, but I always advise my clients to save 6 months worth of living expenses. Living expenses include:
Everything you’re responsible for paying for each month should be part of your emergency savings goal. The idea here is that you’ll be able to cover your expenses - even if you have an unexpected medical bill, or are unable to make your usual income as a result of an accident or unforeseen life event. While it may take some time and discipline to save up enough money, it will be worth it when the unexpected arrives.
It’s also important that you give yourself the permission to actually use this money when you need to. That might seem like obvious advice, but hyper-savers might not want to dip into their emergency savings even in a real emergency just to keep bolstering their bank account. You have saved that money for a reason, and using it will only help you in the long run. Your savings can always be replenished if need be.
The cushion of your emergency savings will help keep you on the right track with your financial ventures. Adding an emergency fund into your financial priorities is one of the best ways to protect you against the unexpected.
Your financial priorities are important because they help you think ahead and plan for the future. But you can’t plan for everything. Be prepared to shift your priorities when the situation warrants and use your emergency funds to help keep you on the right path.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.