How to prepare for unexpected expenses
Written by Chelsea Potter on 1 August 2016
Earlier this year we released our debt tool, Diagnose Your Debt. Our tool uses the most common debt warning signs to highlight how well you are managing your finances and signpost people to relevant advisories if you are on the brink of a financial struggle. One of the questions in this tool struck a chord with a lot of people ‘if you lost your job, would you be under immediate financial strain?’ It’s a lot easier than we might realise to get into debt, a sudden unexpected event like a redundancy or illness can really throw life into disarray. Today’s blog post looks at unexpected events and how you can soften the blow should anything unexpected occur.
- Write a list of potential issues that could develop into problems. The unexpected is exactly that – you can’t second guess when a problem might occur. What you can do however is look at potential vulnerabilities. For example if your car barely scraped through it’s MOT, a breakdown might be a foreseeable possibility. Another example might be an upcoming operation. Recovery time could take longer than you initially thought and you could be out of work for an extended period of time – hopefully this won’t be the case but highlighting these potential problems ahead of time could help you should the worse happen. Unexpected things will occur regardless and you can’t prevent them but you can take steps to reduce their impact- highlighting a potential issue is the first step in doing so.
- Create an emergency fund. Open up a new savings account just for emergency use only. You can put as much money in this fund as you want and build it up over a period of time but prioritise this until you have a useful amount. Having funds ready and waiting will make unexpected events or expenses more bearable.
- Consider insurance. Do some research and look at whether taking out insurance could help you in an emergency. For example if you needed expensive dental surgery and couldn’t get treatment on the NHS, would a private dentist covered by your insurance prove useful? This is not something you necessarily need but it might be worth considering. Always look around however when looking for quotes.
- Plan ahead. A little bit of research goes along way and can really help prepare you for the unexpected. For example if your car engine has been making some strange noises recently, why not ring around some garages and price up some quotes. Should anything happen you know where local garages are, what they charge and it can also help dictate how much you need to save.
- Create a budget. If unexpected expenses do occur you will find it easier to make things work if you have a healthy budget. Create a financial plan so you can monitor what income and expenditure you have – use this to look for ways to make cutbacks and introduce savings. Knowing everything that goes in and out of your bank account will make you more prepared to handle any surprises. It will also make any large bills less overwhelming.
The unexpected can’t be avoided but our five step plan will help to alleviate the financial strain should any surprises crop up. Taking simple steps to get your finances in order and putting together a back-up plan will prepare you much more for any unexpected events or expenses. If you want help putting together a successful debt plan, our budgeting guide has a step by step guide. If you find yourself struggling with your finances however and needing extra help and support our advisers are always on hand to offer advice.
Filed under Money Management