iQuanti: Being prepared for a financial emergency can help keep you financially stable whenever you have unexpected expenses. There are several ways you can keep yourself prepared for a financial emergency, including building an emergency fund, getting a line of credit, or considering different insurance options. Here's what you need to know about how to be prepared for your next financial emergency.
1. Build an emergency fund
An emergency fund can help pay for car repairs, home repairs, and unexpected medical costs. It allows you to rely less on using loans or credit cards, and can also help keep you financially stable if you should ever be unemployed for an extended time period.
Many sources recommend having enough saved up to cover at least three to six months of expenses. If you're a business owner, sole breadwinner, or have variable income, it's recommended you save nine to 12 months' worth of expenses. Include putting money towards your emergency fund as a part of your monthly budget. You can start as small as saving $5 a week to begin your emergency savings. Set a goal of how much you want to save in total based on how much you spend each month.
2. Get a line of credit
A line of credit is similar to a credit card in that you can make payment amounts up to your borrowing limit. You'll only pay interest on the money you borrow. The interest rates on a line of credit are typically lower than on credit cards. This flexible loan can be a great option for unexpected expenses that are higher than your emergency savings.
The maximum amount of a line of credit will depend on the lender, but in general, it may be anywhere between $1,000 and $100,000. Your particular amount, rate, and terms will all be dependent on your risk profile and creditworthiness.
3. Get homeowners insurance
Repairing your home after a small fire can cost anywhere between $3,000 and $5,000. If the fire destroys a larger portion of the home, such as a roof or the kitchen, it may cost up to $50,000 to repair. Homeowners insurance is a policy that insures your home's structure and the belongings in it if a destructive event occurs. Destructive events can include fires, tornadoes, and vandalism. Additionally, because they are usually "package policies," homeowners insurance can cover your liability for any property damage or injury to others caused by you or members of your family, including your pet.
4. Get a life insurance policy
A life insurance policy can be useful for protecting your family financially if you die during the policy term. It's ideal to get a policy with a death benefit amount that's at least 10 times your yearly salary. Some sources also recommend adding an extra $100,000 for each child in your family. Younger individuals can get a 10 to 20-year term life policy at a relatively low cost. The death benefit can pay for funeral costs and keep your family financially stable. Consider all these options to help keep you prepared for your next financial emergency.
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Original Source: How to Be Prepared for Your Next Financial Emergency