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Unforeseen expenses are also like those uninvited guests. They don't come with prior notice. They just arrived, leaving you puzzled about how you would handle the situation without changing your existing plans.
If you are underprepared, you'd be in deep trouble because life is unpredictable like that, and it’s important you have money put aside for unexpected expenses or events. Here's our guide on how you can prepare for one.
What Are Unexpected Expenses? Which Expenses Should You Prepare For?
Emergencies are just that – unpredictable. You can never predict what kind of unexpected expenses you will have to tackle. So, strategic financial planning is a must.
But there are some common ones you can still be prepared for. Some of the examples of unexpected expenses are:
- Damages caused by natural calamities
- Loss of job
- Kids' sudden school activities
- Field trips
- Emergency home repair
- Car break down
Tips To Prepare For Emergencies
Emergencies are of two kinds: one you can prepare yourself for, while the other type is entirely unforeseen. So how to financially plan your budget? Here are ways you can follow to prepare yourself and your family for emergencies:
1. Don’t spend all you’ve got
When the COVID-19 pandemic started and the global economy crashed, millions of people worldwide lost their jobs, and almost all of us severely struggled financially.
It’s almost like if we knew this was coming, we would have had the time to prepare ourselves better for what was lying ahead of us. However, taking a few measures beforehand always leaves you prepared for any event, and the best part is it is not as much of a herculean task as you think.
Your monthly salary could be nearly over a lakh of rupees, but that doesn't mean you should spend it all and live life king size. But we don't mean you should be stingy. All we are saying is to keep your fixed expenses to a minimum.
Your fixed expenses could be house rent, loan EMIs, utilities, food, medicine, and kids' education fees. If you can keep these expenses to a minimum, you can easily cut back on your leisure expenses during a financial emergency.
2. Build An Emergency Fund
Your first step to financial planning includes building a substantial emergency fund. It will secure your life during a financial emergency. No matter how low your means are, start saving now.
Create an emergency fund in two ways. Keep a part of your money in a savings account so that it's easy for you to access it. The other half you can save in a highly liquid mutual fund. Thus, you can have your money readily available within hours or a day, but it will also grow thanks to compounding. Thus, you won't have to get a high-interest personal loan or a credit card to make ends meet.
You never know when an emergency strikes. You should save enough money to survive prolonged rainy days. So, financial experts suggest having at least 9-12 months' worth of your fixed expenses saved as your emergency fund.
3. Get A Health Insurance
Many of us have the tendency to gamble with a low amount of health insurance, either to reduce the premium or to be overconfident about our health. It's a bet you should avoid at all costs.
So, health insurance comes in handy when something unfortunate happens to our health. Having an emergency fund is great, but medical bills tend to skyrocket pretty quickly. So, having a backup plan for unforeseen circumstances like getting health insurance can help alleviate some stress for you.
4. Life Insurance With Accident Coverage Is Must
Are you the sole earner of your family? If so, life insurance with accident coverage as an add-on is a must. It gives you death and physically handicapped benefits.
Accidents can happen at any time. Life and death are unpredictable. That's why it's your responsibility to protect your dependents' lives in case something unfortunate happens to you. The insurance money can cover them for a long time. Double the importance of insurance if you have kids or are a single parent.
5. Obtain Additional Insurance For Other Areas
You might meet with a car accident, or it may break down suddenly. Perhaps you may have had a burglary. Or your home or office might catch fire. Adequate insurance can help you save the day. Although you add up the bills to your monthly budget, car insurance, home insurance, business insurance, etc., can become your lifeline during those adverse situations.
6. Have A Passive Or Secondary Income
Most often than not, the salary from your primary job is not enough to make ends meet. So, having a side-hustle or a passive source of income pays off. Thus, you can save the money you are earning from them for your emergency fund, and this way, it will not even pinch your monthly budget.
Alternatively, in some rare instances, if you get additional money such as tax refunds, cash gifts, or bonuses, save them for your emergency fund instead of spending them. Additionally, if you have a couple of unused rooms, you can rent them out and enlist them on Airbnb. This way, you can create multiple sources of income that can help you be prepared for emergency expenses.
7. Create A Fallback Budget
When you are all done taking the necessary steps to be prepared for emergencies, the next step is to create a fallback or backup budget. This budget is for those rainy days. But what is not true about unexpected expenses is that if you have a budget, you can easily avoid having emergency expenses. In reality, life works in a mysterious way. It can happen despite having an error-proof budget plan.
This fallback budget should include only the necessities – things that you can't live without, such as housing, rent, food, utilities, child education costs, and EMI. A backup budget will come in handy when you have sudden financial needs or prolonged unemployment days.
8. Invest In Digital Gold Everyday
From ancient times, buying gold jewellery was considered a smart choice. You could sell them during an emergency. However, nowadays, financial experts prefer digital gold and gold bonds over physical gold due to its depreciating value.
Thanks to advanced blockchain technology, digital gold has become a popular digital asset without the difficulties of claiming physical gold. It is also considered a much safer investment than equity and debt.
But, gold investment is expensive, be it physical or digital. You think you need a large sum to invest in gold. Not anymore. With the Jar App, you can invest in digital gold and save money daily. It is India's first automated investment app that lets you invest as little as ₹1 in digital gold. This app allows you to save spare changes from your online transactions and invest in digital gold.
Let us give you a small example. Suppose you have ordered groceries online for ₹482 or a dress worth ₹722 through UPI. The app automatically rounds off the amount to ₹490 or ₹730 and the spare change of ₹8 and ₹8 will automatically get invested as digital gold in equivalent amounts through the Jar app. Now, you can keep investing in digital gold every time you spend, and you can even withdraw it as physical gold whenever you want. Thus, not only are you investing in digital gold, your money will continue to grow with the market rate.
To know more about how to get started with digital gold investment, check out our blog on how To Use Jar App.
While it is impossible to predict future emergencies, with a little research and preparation, you can protect yourself and your family from troubled times. It may seem unimportant when everything is going well, but when emergencies hit, you should be well equipped to get through the hard times and overcome them. So, start planning now if you haven't started already.