With all of life’s uncertainties, being prepared for worst-case financial scenarios is crucial and can turn a crisis into nothing but a simple inconvenience

With a pandemic under our belts and a few other large-scale recent global events that have caused us to question the fabric of society’s economic stability, the sheer unpredictability of life is something we’ve all had to face on a universal level. And now, with economies struggling all over the world and the price of petrol at an all-time high, personal financial security seems more critical than ever. But, on a smaller scale, for many of us, just something as trivial as our car breaking down or our cellphone being stolen can, in itself, have a devastating impact on our bank balance and set us back quite substantially. There will always be options out there to swiftly acquire the necessary finances in times of crisis, such as taking out a personal loan. But at least, in these cases, we can also take preventative steps to avoid being caught off guard and take our financial preparedness into our hands. There are three key steps popularly highlighted by finance experts to fortify yourself financially: Start an emergency fund, reassess your insurance, and budget for the unexpected.

Start an emergency fund
There’s a reason this one’s at the top of the list. It’s the easiest and most sure-fire way to ensure that when disaster strikes, you won’t have to break the bank just to stay afloat. The golden rule of thumb that most experts swear by, is to try to put away at least three to six months’ worth of living expenses into a fixed savings account reserved exclusively for emergencies. As Forbes magazine writes, ‘A favourite mantra of many personal finance professionals is always to pay yourself first.’ That way, if you’re faced with sudden large medical bills or expensive car repairs, you can dip into your emergency fund rather than using your credit card or prematurely having to withdraw from your retirement fund.

Reassess your insurance
Many people are hesitant to take out insurance because it’s difficult to justify an additional monthly expense when there’s no guarantee you’ll ever need it. But being insured is a vital financial buffer for those unexpected yet inevitable events that could take a chunk out of your budget. The three most important forms of insurance to ensure you’re covered against major loss are health, house and car insurance. Protect your most valuable assets first. Then there’s also life and disability insurance that should be considered in the event that you can no longer support yourself or your family financially. These may all seem unnecessary, but rather ask yourself, ‘What is the risk of not having insurance?’ 

Budget for the unexpected
Revise your monthly budget to take the unexpected into account. Rather than budgeting in a way that you only set aside the necessary amount to cover living expenses and leisure, try to cut down on excessive spending to reserve a fraction of capital for emergency spending instead. According to Visa’s Practical Money Skills, ‘Being aware of your budget as a whole will help you recognise the difference between needs and wants, prioritise payments and, if necessary, adjust to cover unexpected costs.’  These are just a few examples of what you can do to make sure you’re financially prepared for life’s curveballs. But if you want to start small, there are some additional tips. You can start by making more money to save more for your emergency fund, suggests Bright Capital. Supplement your income with side hustles, picking up a few extra hours at work, or even selling some of your old appliances or household items. According to Community Choice Financial, working to become debt-free as soon as possible is another significant way in which you can cushion yourself against financial hardship. Once your debt is paid off, you can repurpose that monthly payment to go to your emergency fund, and in the event that your budget takes a knock, you won’t have to worry about that extra debt repayment coming off your account every month. Being financially secure means nothing without accounting for the unpredictable. 

Words by Lauren Endrody
Photography: Gallo/GettyImages