A growing number of New York residents cannot afford unexpected expenses. In fact, less than half of the U.S. population believes they can afford an unexpected financial emergency of $1,000. Whether you experience a natural disaster or an unexpected medical bill, certain steps may help prepare you for a financial emergency.
Build an emergency fund
The most basic step in preparing for a financial emergency involves building an emergency fund. Ideally, the fund should provide at least six months of living expenses.
An emergency fund should include all of your monthly expenses, such as:
• Mortgage or rent
• Insurance premiums
• Utility payments
• School fees
• Grocery bills
• Car payments
Health care crisis planning
An unexpected illness or injury often creates a financial disaster. Even if you believe that you are in perfect health, proper health care crisis planning may protect your financial future.
Health care crisis planning should involve the following steps:
• Examine existing insurance and assess whether you can afford the deductible.
• Include your deductible in your emergency fund.
• Determine if you qualify for Medicaid.
• Appoint a durable power of attorney for your finances and healthcare decisions in case you become incapacitated.
Focus on improving your credit score
No matter how much you save, you may still end up needing to borrow money if you hit a major financial disaster. Obtaining a personal loan may help you with your financial crisis. However, poor credit scores can result in high interest rates and create even greater financial problems. By repairing your credit, you may be able to use better loans and better interest rates.
Few people can afford to suddenly build an emergency fund, establish a health care crisis plan or rebuild their credit overnight. Preparing for a financial emergency requires long-term diligence. This may seem like a hassle, but your long-term planning may save your finances if you ever experience a true financial emergency.