Throughout life, you’ll be faced with a variety of unexpected financial twists – this could be anything from a car that won’t start to damage to your home – and you’ll have to find a way to pay for it. This can be particularly difficult if money is tight due to low income, or debt. Whilst there are finance options you could choose to help you, like loans without a guarantor, as well as short-term options, knowing how to create a financial safety net so you can manage emergency expenses with ease is crucial. Read on as we take a look at the aspects of a safety net to help you deal with unexpected expenses.
Why do you need a financial safety net?
Life is unpredictable, and you never know what’s just around the corner, which is why it helps to be as prepared as possible in case of an emergency. In the future, you may find yourself faced with a broken-down car, an urgent home repair, or vet bills that your monthly income cannot stretch to cover. These are crucial expenses and not something you can simply forget about – these are costs that could have a profound impact on your life.
This is where your financial safety net comes in – and there are a few aspects to it, including an emergency fund. This fund is cash you’ve saved separate from your monthly income, that you can use without disrupting your monthly cash flow, to cover urgent expenses. Financial experts say you should have at least 3-6 months’ worth of income saved in your fund so you can get by should you be faced with financial difficulties.
Building your safety net
The idea of a financial safety net is all well and good, but how do you save money when cash flow is already tight? Let’s take a closer look:
Emergency fund
As mentioned above, your emergency fund plays a crucial part in your financial safety net. To save for this, put a small amount of your monthly pay into a high-yield savings account and build this up over time. You can automate payments into this account allowing you to remain consistent, so you can watch the funds build up. You should only use the cash in this account when you really need it – try and refrain from dipping into it.
Insurance
Insurance is also an essential part of your safety net. Make sure you have health insurance to cover significant medical bills, as well as pet insurance, and home insurance to protect you from unexpected property damage. Having insurance in place means you’re protected from various emergency expenses, so if you have the correct policies in place, you won’t have to find the cash to pay for it.
Budget wisely
Creating a budget is one of the best ways to craft a safety net for surprises life throws at you. Taking into account how much you get paid each month, and how much you spend in outgoings will allow you to get a clear idea of where your money is going. Categorise your expenses, focusing on paying off debt and saving a little each month, and stick to your budget to help you avoid overspending.
Diversify income
Another way in which you can craft a safety net is to diversify your income. If you’re a creative, you could look at freelance jobs that you can do in your spare time. Think about your hobbies and how you could monetise them to bring in some extra cash each month. You could sell things you no longer need or take on a part-time job. You could also look at passive income streams to give your monthly income a boost, to help you craft a safety net you can use in times of financial struggle.