photo courtesy scottnj
What does the future hold for you? No one really knows, do they? (Except maybe for that psychic that comes on at 2am.) That’s where the importance of your insurance policies come in. They help you to reduce the financial risk associated with an unplanned accident or tragedy in your life. There are other parts of a good financial plan that are designed to reduce risk as well.
A well prepared budget also reduces risk. If you use wise budgeting practices, you can reduce the impact of unexpected jumps in your budget. I always recommend that you estimate income to the low side each month and expenses on the high side.
Think you’ll work some extra overtime next month? Don’t include it in your budget during your planning.
Expecting an extra warm winter? Use your normal gas bill estimate not the reduced one.
What this does is allow you some extra flexibility in your budget so that when the water pump goes out on your car, you can fit it within that month’s budget rather than tapping into that emergency fund.
If things go well that month, don’t blow that “extra” money either. Have a plan as to what you’re going to do when “extra” money comes your way. Apply it to debt. Add it to your emergency fund. Put it toward that family vacation to Italy you’re saving for.
The emergency fund itself is also part of your plan for the unplanned. Money Magazine found that 78% of families will have a major financial setback in any given 10 year period. It will happen, so plan for it.
Do you have any stories to share about a time you were ready for an unplanned event, or where you weren’t and wish you had been? You can read about mine on my About page.