A safety net is there to catch you when something goes wrong. It makes sure that the fall doesn’t cause any serious damage and helps you recover quickly. Living without a safety net could be devastating.
You should set up these safety nets to guarantee that your finances will be fine whenever disaster strikes.
1. Emergency Fund
An emergency fund is a collection of personal savings reserved for urgent, unplanned expenses like car repairs or home repairs. You can withdraw the amount needed from the fund and use it to recover from the emergency as quickly as possible.
Without an emergency fund, you might have to wonder whether using funds from your checking account to cover an emergency expense will impact your monthly budget. You may not be able to manage your essentials, like mortgage payments, insurance payments or utility bills. Making that mistake could push you to have less than you need for these essentials, forcing you to make late payments or miss them altogether. Or it could encourage you to drain your checking account past its limits and go into overdraft. It’s not a good position to put yourself in.
Your emergency fund can also come in handy during times of major upheaval. For instance, if you suddenly lose your job or take time off to care for a sick relative. You could use the savings in your fund to supplement your income, handle your essentials and maintain your financial stability.
Try your best to save three to six months’ worth of your income in your fund. This should be enough to keep you afloat during these times of upheaval.
2. Credit Card
A credit card is often considered an effective shopping tool, allowing you to borrow credit to purchase items that you might not be able to afford right then and there. You can simply make the transaction and then pay down the balance later.
But that’s not the only purpose of a credit card. The more important purpose is for emergencies. You can use your card when you don’t have the funds to deal with an urgent and unexpected expense. For instance, when you don’t have enough in your emergency fund—or worse, you don’t have an emergency fund at all—you can charge the emergency expense to your card. Once that problem is resolved, you can work to pay down the outstanding balance as quickly as possible.
Your credit card can only act as a safety net when the balance is low. If the balance is too close to the limit, you won’t be able to put an emergency expense on it without risking a high debt load or a maxed-out card. There are serious consequences that come with maxing out your credit card that you should try to avoid to the best of your abilities.
3. Line of Credit
A line of credit is another credit tool that you can turn to when you don’t have the available savings to handle an emergency expense. With a line of credit, you can request a withdrawal that’s within your pre-approved credit limit. If that request is approved, those funds will be deposited into your checking account, where you are free to use them to cover an emergency expense in a short amount of time.
Similar to the credit card, you can recover from the emergency and then focus on repayments. You will have to follow a steady payment schedule to help you repay the borrowed funds and replenish the credit in your account.
What if you don’t have a line of credit? If you don’t have a line of credit sitting in your financial portfolio already, you can click this link to apply for a personal line of credit online. As long as you meet all of the qualifications, you can send in your application. You just might get approved for the account, giving you an additional safety net for emergency situations.
4. Health Insurance
Finally, another safety net that everyone should have is health insurance. Healthcare services in this country are notoriously expensive. They are a major contributor to financial instability and insolvency. A study from the American Journal of Public Health found that medical issues were tied to 66.5% of bankruptcies in the country.
Without insurance, you will leave yourself vulnerable to exorbitant medical bills if you or a member of your household needs medical care. If you’re living without health insurance at the moment, you should make the change as soon as possible. Get yourself covered.
Your health insurance plan won’t cover all aspects of healthcare. For instance, your plan won’t include most treatments for dental care. It’s treated as a separate entity. To close the gap, look for private dental insurance or dental discount plans to guarantee that you have coverage for treatments and minimize their costs as much as possible.
With these safety nets set up, you can be sure that you and your finances can handle a disaster.
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