You can lose sight of your financial goals in the hustle and bustle of the holidays. But in the cold, harsh light of the new year, it’s obvious your festive overspending was a bad idea. It leaves you with more debt and less cash than you need.
How would you handle an unexpected expense in the upcoming months? Keep reading to find out how to prepare your finances for the unknown.
Tweak Your Budget for Irregular Expenses
Your annual anti-virus membership renewal, property taxes, birthday gifts, and dental cleanings may feel like emergencies when they come suddenly and you haven’t prepared. But these are common examples of infrequent or occasional expenses you’ll face multiple times a year.
It’s important you include the infrequent and irregular bills in your monthly budget. This way, you can set aside some cash with each paycheck for these expenses, and you won’t be scrambling for cash when it comes time to pay them.
Create an Emergency Fund
You might not be able to anticipate what exactly will go wrong in the future, but you can prepare for anything by setting aside money in a general emergency fund.
An emergency fund is a backup cushion of savings that can cover anything you didn’t think to include in your budget.
Most financial advisors recommend saving three to six months of living expenses in this fund. If you’re starting from scratch, focus on what you can do to save your first $1,000 and work from there.
What if Your Budget and Emergency Fund Aren’t Enough?
While a budget and emergency fund are financial must-haves, they aren’t invincible. Even the best budget and savings can meet their match if you run into several problems in one week.
Here are your options:
1. Use Credit
The plastic in your wallet might offset some of the pressure caused by your emergencies. You can put an extra bill or two on this account and pay it back in chunks, whenever you get the money.
The problem is that credit might not be an option if you’re still paying off the holidays. Nearly 42% of people expected to take debt to afford the festivities in 2022, most of them using credit cards to do so.
2. Borrow from Direct Lenders
If you don’t have room on your credit cards, you might choose direct lender loans as a substitute. Online direct lender loans offer a simple and convenient way to borrow money online in emergencies.
Many online loans come with fixed payments spread out over multiple weeks or months. This schedule gives you some breathing room to come up with the money, so you don’t have to pay off your emergency in one lump sum.
3. Research Insurance
Depending on your emergency, it might be time to contact your insurance company. Your coverage helps you with life’s biggest expenses, like a massive car accident that results in costly damage.
Compare this to an online loan, credit card, and even savings. These are better equipped for smaller issues, like a minor fender bender.
If you don’t already have insurance, take this as an opportunity to shop around. Compare the available policies for health, life, home, and auto insurances.
Remember This for Next Year
Avoid repeating the same mistakes as last year. Start saving for the holidays now, so you’re less tempted to overspend and throw off your finances in December.