It’s difficult to predict the future. But it’s particularly difficult to predict your financial future. After all, who has a crystal ball to tell them what the future holds? What if your car breaks down and it needs major repairs? What if you get laid off or lose your job? What if you become ill and are unable to work? There’s a lot of “what if” scenarios out there.
With rising costs of living and unstable job markets, how do you prepare yourself for unexpected situations? We have heard about the rising debt of Canadians and how some have said many are within $200 or less per month away from not being able to meet all their bills or debt obligations each month.
In a perfect world, the best way to plan for your financial future is to stay away from debt, to save for those big purchases, and to minimize the debt you take on. But, in today’s economic climate, that may not always be practical.
The best place to start, is by preparing a detailed budget. It’s important to know what your monthly income is and what your living expenses are, in order to know what discretionary income is available. This will help you determine if you can support debt payments in your budget. Don’t forget to plan ahead for those purchases that you buy now and can pay for later. By putting funds away each month, this will allow you to pay for the purchase before the due date and avoid the high interest cost of carrying the debt for a longer period of time. You can also budget to “pay yourself” each month in order to have savings to help tide you over when your income is reduced or you have an unexpected expense.
In order to prepare for unexpected events, it’s best to have savings equal to at least two-to-three months’ living expenses. This will get you through the short term while you’re seeking new employment, getting sick benefits in place, working through a revised financial plan or paying for that unexpected expense.
At the end of the day, it’s always best to plan, plan, plan. When purchasing an item, ask yourself whether you need it… or just want it. It’s alright to buy something you just want – but be careful to ensure you aren’t sacrificing the things you need to do so. Practice to live within your means so you don’t incur high debt. This way, when something unexpected happens, you can weather financial storm.
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