Your life can change in an instant. Every day, people find themselves in completely unexpected financial situations. Without a safety net, these individuals could end up losing their possessions to bankruptcy. Many people don’t realize that medical bills are actually the top cause of bankruptcy. This shows how important it is to have some form of financial safety net.
An emergency fund is one of the most effective ways to protect yourself from financial duress. However, a huge number of people don’t have any money stashed away. About a fourth of individuals in the United States have no emergency fund at all. This isn’t just an issue for young people. This is a problem for all age groups.
Part of the issue is that people are having a difficult time finding money to put aside for rainy days. This is a particularly prevalent issue for those who have to support a family on a single income. Then again, it’s often possible to find extra money for an emergency fund by fining areas to cut back on expenses.
Even people without a lot of wiggle room with their finances can work toward a safety net by using proactive budgeting strategies. A lot of people don’t realize ways in which they’re spending more money than necessary. Here’s what you need to do in order to create an effective budget:
- Collect all your financial documents. This should include bank or investment account statements, bills, credit balances, or any other official paperwork.
- Add up all your income. You’ll want to include all income from various sources. Make sure that you use your after-tax income, as this will give you a true estimation of how much you’re bringing in each month.
- Determine your full cost of expenses. Oftentimes, people fail at budgeting because they don’t account for all their monetary outflows. Don’t just include things like rent and other recurring bills in your budget. Calculate how much you’re spending doing things like dining out, which is a major cost for many Americans.
- Determine essential and non-essential expenses. Things such as rent, loan payments, and insurance are definitely essential costs. However, even these payments can be reduced by shopping around for better rates. Look through your non-essential costs to see what things you can cut out completely. Gym memberships and cable packages are good places to start.
Individuals who are unable to build an emergency fund or budget money ahead of time might need further assistance. Debt relief is another form of financial safety net available to people going through monetary troubles. Freedom Debt Relief is one of the most popular organizations for helping people get out of debt. They negotiate with lenders in order to reach more favorable terms for people struggling to make payments. Some people may even qualify for their Consolidation Plus program.
There are several types of retirement accounts. The basic idea behind them is that individuals can defer their tax payments as long as they don’t prematurely withdraw money. This allows savers to accumulate more money for their retirement. While IRAs are meant to be used in retirement, they can be a financial safety net before then for people who find themselves needing money. It’s a good idea to take advantage of other resources before dipping into retirement accounts.
Many people forget that there are government programs that exist specifically to provide financial safety nets for people in need. Societies function better when individuals don’t have to live in financially precarious scenarios. Unemployment is one of the programs that was created in order to help people stay afloat during difficult times. Your job and where you live will determine how you can use unemployment benefits. Also see if there are income-based government programs in your locality that provide assistance with food or housing.
There are nearly limitless reasons why people might need a financial safety net. No matter the situation, having that resource can keep you afloat in tough times. Consider the viability of these financial safety nets for your particular situation.