How to plan for the unexpected

Bad things happen all the time, but they will never happen to us, right? Think again. One in five workers were laid off at some point during the past few years, according to a Rutgers University study.

Unexpected money inflows happen, although they are uncommon: winning lottery tickets or inheritances are not unheard of, but definitely not under your control. On the other hand, some “unexpected” expenses are so certain that we should just plan for them ahead of time: everybody gets sick every now and then, cars require maintenance, and, eventually, one can get laid off.

There are a few ways to safeguard for the unexpected. One of them is insurance. Insurances are designed exactly to protect one from bad luck. Basically, you are paying a small recurrent amount, so that when you face a big expense related to the insurance, a car accident, for example, you can count on having that expense paid in full, or at least a good portion of it.

Another way to protect yourself for unexpected expenses is simply to put money aside yourself. A lot of people would call it an emergency fund. But this definition doesn’t help that much. Is a life threatening disease an emergency? Most likely yes, but probably a health insurance would have been the best instrument do deal with it. Is a job loss an emergency? Most likely yes, but if you had a seasonal job, like landscaping or roof repairing, you had to plan accordingly or simply have saved the best portion of each paycheck.

The amount of funds you should have reserved and how you are going to tap into such funds is also going to be specific to your situation.

What is under your control is the ability to save recurrently, and this is what you should do. If you have a goal, don’t wait for an unexpected inflow to achieve such goal. Work towards your goal, with effort and discipline. Deposit the same amount religiously in a savings like account (a mattress or piggy bank are not ideal, but can play a role). Count as if it were a household expense, or a utility bill.

At the end of the day, be prepared with the tools you have in hand, because rainy days come, it is just a matter of when.

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IMMI Financial Solutions

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