Coping with Unexpected Expenses
Monday, November 10th, 2008The best way to cope with unexpected expenses is to be prepared for them in advance! Financial planning is where you put controls in place that help you cope with both the expected and unexpected events in life. Here are my top four tips:
1. Put systems into place that prepare you for unexpected expenses. It could be a sum of money set aside as “savings” that you add to each month. Many advisors recommend having 3 months’ earnings set aside for just such a purpose.
2. Understand your risks and to take precautions to minimize them. If you aren’t aware of where your risks are, or haven’t evaluated them recently, sit down with a qualified financial advisor at a reputable firm. Consider all the potential areas of exposure: death, sickness, loss of income, loss of money, old age, unexpected accidents or repairs, and so on.
3. Where those risks could result in a devastating change to your life, secure your peace of mind with appropriate insurance. Many people have the basics covered, but what about critical illness, disability, business overhead or long-term care? There is pet “insurance” too, which can spread the inevitable costs of caring for you pet’s health over time, like a forced savings program.
4. Look at your sources of income. Do you have more than one? How much are you in control of its continuity? Many excellent business ideas have come about because the owner faced a critical expense, and faced it with an idea that brought in more money. But if you are proactive and think of that money-making idea before an expense takes you “over-budget”, you will be in better shape. Your secondary sources of income do not have to take a lot of time, either. Income-producing investments, rental properties, or an idea that can be licensed or that produces royalties all count as alternative sources of income.
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