Sometimes everything falls into place. Your job, family, and finances are all in order and life is good. That’s when the unexpected strikes. In the blink of an eye, a surprise medical bill, car repair, or appliance failure sets you back hundreds if not thousands of dollars. A sudden blow to your budget can affect your credit score, savings plans, and even jeopardize your ability to make house payments.
Preparing for unexpected expenses requires cutting back and saving money before you need it. Rather than building an emergency fund, most people find it easier to put aside money for an upcoming vacation or sacrifice a daily latte to save for a new car. At American National Bank we’ve seen how important building emergency savings is to our customers’ financial health. Here are the top ways to financially prepare for the unexpected.
Anticipate potential expenses
Take a moment to think about the year ahead. Will you owe taxes next April? Have your heating and cooling bills historically increased during the hottest and coldest months of the year? By factoring these annual expenses into your monthly budget, you can put aside money throughout the year to prepare for these increases.
Think about your home and car. Most repairs can be anticipated based on the age of your house and average use of your vehicle. Your home’s HVAC system, roof, and water heater all have expected lifespans. The same goes for your car’s tires, engine parts, and maintenance. Putting money aside for these predictable expenses saves you from scrambling when the bill comes.
Some medical needs are anticipatory as well. This is especially true for children and older adults. You can start saving for your children’s braces, new glasses, or hearing aids for yourself well before the bill comes. By taking the time to plan for these expected needs, you’ll avoid getting caught with too little in your bank account.
Create an emergency fund
For the unwelcome expenses that life springs on you, there’s your emergency fund. A nail in your tire, a broken arm, or a tree falling on your fence are life events that simply aren’t expected. It’s important to create and maintain an emergency fund to pay for expenses that can’t be anticipated. Failure to pay emergency bills can lower your credit score and affect your financial health for years to come. Knowing that you have money tucked away for the unexpected will save you from unnecessary stress and financial turmoil.
Financial experts recommend maintaining an emergency fund that can cover three to six months’ worth of your normal living expenses. If that seems daunting, take small steps towards saving. Set a goal of a couple hundred dollars and commit to building from there. The best way to fund your emergency account is to create automatic transfers from your checking account each month. With automatic transfers, you won’t be tempted to spend the money as it sits idly in your checking account.
Whether you can commit $50 or $200 each month, transfer the money directly to your emergency savings account. If you don’t already have a bank account exclusively dedicated to an emergency fund, open a new savings account today. Utilizing an interest-bearing savings account for your emergency fund will grow your money without you even trying. Don’t comingle emergency savings with other events you may be saving towards. Create sperate accounts for each of your savings goals. Your emergency fund will only be there when you need it if you commit to growing it and avoid non-emergency withdraws.
Craft a lean budget
You may already have a monthly budget that helps manage your spending. You take your monthly income, subtract your unavoidable living expenses, and determine how much money you have to spend on the fun things each month. Hopefully, you are also budgeting contributions to savings. If not, it’s time to trim the budget!
Savings should be a dedicated line in your monthly budget. Retirement savings, emergency savings, and special purchase savings should all be accounted for. If you haven’t been making regular contributions to savings, you’ll need a lean budget to get started. When creating your new budget, plan for living expenses first (utilities, rent/mortgage, gas, groceries) and then commit to saving a certain amount each month. What you have left over for discretionary spending may feel restrictive, but funding your new emergency account is important if you wish to avoid financial hardship in the future.
Pause non-essential spending
The best way to ensure you have money in emergency savings is to cut back on non-essential spending now. Start by cutting back on your restaurant and entertainment expenses. Check your phone’s app store to review the recurring subscription payments you are making each month. A handful of $7 – $10 charges each month can add up quickly, especially if you signed up once and haven’t used the service since. Be deliberate with your spending and avoid impulse purchases both in stores and online. Thoughtful spending will ensure that the purchases you make are worthwhile and contribute to your long-term happiness.
Get insurance coverage
Floods, fires, and car accidents can disrupt your life in ways that extend far beyond your bank account. Because your focus should be on your family and home during times of disaster, the biggest emergencies are often covered by insurance. The last thing you want to worry about during an emergency is how much you have in savings. Insurance helps alleviate the stress and financial burden that comes with unexpected destruction. At American National Bank, we stand by our customers during both their good financial times and their stressful ones. We offer home, auto, life, flood and umbrella insurance to help support our community. Insurance coverage will limit your out of pocket expenses when emergencies arise.
Start saving today
At American National Bank, we’re dedicated to helping our customers achieve financial health. Don’t wait any longer to start saving for unexpected expenses. Open a savings account and kickstart your emergency fund savings. Our friendly associates are available to answer your savings questions and discuss your financial needs. Contact us online, request an appointment, or visit one of our convenient locations throughout Central Virginia and Northern North Carolina. We know you’ll sleep easier once you establish an emergency savings account with American National Bank.