When Life Changes on a Dime: 7 Ways to Prepare Financially

When Life Changes on a Dime: 7 Ways to Prepare Financially

Life is full of uncertainties that can lead to financial disaster if you are not prepared. These uncertainties range from losing your job, having an unexpected expense, and even your death. However, there are ways to prepare for the times when life’s changes unexpectedly happen.

Identify Potential Expenses/Losses

Before you make any moves with your money and finances, make a plan. Whether you are in your 20s, 30s, 40s, or even your 50s and beyond, planning ahead for potential financial issues is always a good idea. Look at things like:

  • Regular expenses (food, gas, loan payments, etc.)
  • Job loss (something that’s on everyone’s mind since the “Great Recession”)
  • Needing to move
  • Expecting a baby
  • An unforeseen medical condition
  • A natural disaster

Once you have identified potential risks, you can begin making plans. As you get older, revisit this list and adjust it for any new circumstances.

Open a Bank Account

If you are one of the 7% of Americans who doesn’t have a checking or savings account, open one today! A bank account gives you a place to save your money and yes, it is safe. The Federal Deposit Insurance Corporation (FDIC) will insure deposits up to $250,000. It’s easier to save money with a bank account and many employers require an account to make direct deposits of your paycheck.

Establish an Emergency Fund

Use your bank account to create an emergency fund. You should have enough money to last eight months at your current standard of living. For example, if you need $2,000 a month to meet all of your expenses, you would need to have $16,000 saved. That’s a lot of money but saving it is possible. Try putting aside $50 a week to start. It will be slow going at first, but you’ll be amazed at how quickly that adds up.

Check Your Paperwork

Make sure to check the fine-print on your insurance so that you are not left holding the bag. For example:

  • Understand how your health insurance works and what your deductible is.
  • If you don’t own a home but rent instead, consider getting renter’s insurance. This helps in case you lose your possessions due to a fire or theft.
  • If you haven’t yet made out a will, do so. This puts in writing your final wishes and to whom you would like to give assets.
  • Update your accounts to include beneficiaries.

Start Saving for Your Kids

When you know that you are expecting a baby start planning now to ensure their financial future. Even before the due date, you can open a 529 college savings plan so that when the time comes they will be ready financially. Also, make sure to revise your health insurance policy to include your child on your plan and to file for important documents such as a social security number and a birth certificate.

Get out of Debt

Nothing is more of a drain on finances than debts, especially if you find yourself in a financial pinch. Unpaid debt can lead to bill collectors and a ruined credit rating. So do what you can to pay off debts such as student loans and credit card debts now while you’re on solid financial footing. Even better, avoid getting into credit card debt in the first place by sticking to a budget.

Work with a Financial Counselor

A financial counselor is a great resource when trying to prepare financially. Thinking about these “what if” scenarios raises a lot of questions and concerns that can cause stress. A counselor familiar with financial issues can be helpful for not only navigating the money part of these problems but the emotional component as well.

Life is all about change. However, you can be ready by taking simple steps such as getting out of debt, starting a savings account, and having your documents in order. Then, you’ll be financially prepared for whatever direction life chooses to take you.

Denise Kautzer is a Licensed Professional Clinical Counselor and a Certified Public Accountant whose practice is located in St. Paul, MN. You can view her website at www.denisekautzer.com or contact her at denise@denisekautzer.com.