Budgeting and Saving for Financial Emergencies

Financial difficulties can be hard to overcome, but with some preparation and planning many individuals can prevent exceptionally harmful outcomes. Budgeting and savings plans are crucial to building up emergency funds in the event a job is lost or a major medical bill needs paid. The best way to approach budgeting and savings plans is to track how much income you have coming in versus how much money you’re spending on different expenses. Once you have an idea of what type of expenses are necessary, you can begin to find ways to cut unnecessary expenses and put the extra money in an emergency savings account.

Budgeting

Learning how to budget starts with knowing how much money you have coming in. For those who get paid an annual salary, this step is relatively simply. Hourly, part-time, and freelance or contract income can be more difficult to estimate. One way to plan for this type of income is to budget a monthly average based on yearly earnings. Another way is to budget for the lowest possible income average per month. For more information on how to budget for unpredictable income, click site.

Saving

A crucial part of any financial management plan is setting aside part of your income for emergencies. Examples of emergencies including serious illnesses, accidents, loss of employment, and loss of property. Ideally, an savings account for emergencies should contain between six and twelve months worth of income. Some individuals want to save up to two or three years worth of income, in the event they choose to become self-employed. A larger amount of savings can help pay the bills in case self-employment must be abandoned in lieu of a traditional job.

Planning for disasters that could put you in a financial bind involves finding ways to save enough money so that you don’t have to borrow funds from family, friends, or creditors. Figure out how much you can expect to make each month. Then figure out what items you need to spend money on versus items you don’t. For example, you may want to scale back on eating out at restaurants or ordering take out. Use the money you would normally spend on these items and put it in a savings account, preferably one that earns interest. You’ll start accumulating enough money to cover the unexpected, while avoiding the hazards of accumulating too much debt.