Preparing for a Financial Emergency

Even if you have a good handle on your finances, it’s always helpful to make sure you’re prepared in case of an emergency. Financial emergencies can pop up at unexpected and inconvenient times. When they occur, having additional savings or a backup plan can act as a critical safety net. Here's how you can prepare for a financial emergency. 

Cut Costs to Boost Your Emergency Fund 

One easy way to quickly build up a large emergency fund is to cut costs elsewhere and transfer the difference to your emergency account. Look for expenses you don’t absolutely need and try trimming them at least temporarily. To start, you could: 

• Cancel unnecessary subscriptions 

• Switch to generic brands when you go grocery shopping 

• Compare insurance plans, phone plans, and more and switch providers if it saves you money 

• Negotiate bills or debt repayments to have more money to allocate toward savings 

• Make sure your emergency fund covers at least three to six months of regular household expenses 

Stick to the 50/30/20 Rule 

If you think your current budget might be keeping you from saving extra money toward emergencies, it might be time to retool your budget according to the 50/30/20 rule. This simple rule can help you design a strict yet realistic budget for your family. It simply says you should: 

• Spend no more than 50% of your monthly take-home pay on the basics of everyday living, including your rent or mortgage expenses, your utility bills, your groceries, and your minimum debt or interest repayments 

• Commit to spending no more than 30% of your take-home income each month on entertainment and other expendable, non-essential “fun” expenses 

• Save a minimum of 20% of your income and put it away towards your major financial goals, including building up a savings fund, starting key investments, or putting away cash for longer-term goals such as purchasing a home or retiring 

Find a Side Hustle to Secure Your Financial Situation 

If you’ve got a little extra time in your schedule, why not find extra ways to pad your wallet? Picking up a side hustle can be a great way to bring in a little extra cash and to help secure your financial situation. For example, you might: 

• Take a current hobby, such as knitting, writing, taking photographs, and monetize it on a part-time basis 

• Find a part-time job that can complement your full-time work 

• Look for investments that could help you earn passive income 

Financial emergencies are unpredictable and could occur at any time, making early preparation essential. If you’ve got a handle on your finances but want to beef up your safety net just in case, make sure to carefully follow these preparation tips.