Most of us familiar with the well-used cliché about saving some money for a rainy day, but the brutal truth is that far too many of us are not actually financially prepared if their circumstances take an unexpected turn for the worse.
Losing a job or maybe having to make a work accident claim are two of many scenarios where you may find your finances come under stress, leaving you in potential difficulties until you get back on track.
Expect the unexpected
There are plenty of regular bills that most of us have to pay and to a certain extent, many of us have enough financial resiliency to cope with a few minor bumps in the road like an unexpected car repair bill.
Knowing how much you have to pay each month in rent or mortgage plus other regular bills like electricity, telephone and cable, allows you to budget and work out exactly what you need to earn to cover all these costs.
The widely used cliché of a rainy day is often used to describe an extra cost that we know is coming up on the horizon, such as paying for a holiday or buying birthday and Christmas presents, but it still has a detrimental effect on our bank balance unless we try and hold some money back for when that rainy day arrives.
Planning for extra expenses
There are certain events that can have an adverse effect on our finances that we can anticipate, even though we don’t exactly know when they are going to happen.
For example, if you are running a car that is a few years old there is a fair chance that you are going to get a repair bill at some point for new brakes or some sort of repair as a result of normal wear and tear.
A good starting point when planning for extra expenses is to sit down and make a list of all of the things that you think could cause a rainy day situation with your finances.
Write down an estimated figure for each potential or anticipated event. This means working out how much you spent on Christmas presents last year, using the last car repair bill as a guide and putting a figure on every additional expense you are likely to face within the next twelve months.
Set up a rainy day fund
Add all of the individual items up together and then divide that figure by twelve.
This will give you a monthly figure that if you put this amount aside each month, you should be able to cover that expense when it comes around using the money accumulated.
The best thing to do is to set up a separate savings account and then transfer the set amount to that account every month when you get paid. You will soon get used to this amount going out of your account and if your car doesn’t need a repair in the next twelve months for example, you will have some extra cash ready for when something unexpected crops up.
This level of financial resiliency is surprisingly easy to achieve if you have a regular salary coming in and it leaves you more able to cope when a rainy day event strikes.
Author Bio: Robert Berggren works in consumer finance and appreciates the importance of financial resiliency. He likes to offer his insights and suggestions online and writes frequently for several different personal finance websites.