No matter whether you have set up a budget, keep track of all the money you spend, and even if you do pay all of your regular bills on time, if you are ill-prepared for financial emergencies then you will still struggle to stay afloat.
Not only does this mean having money in reserve, but it also means keeping track of your credit report and credit score, because this has a much greater effect on your finances than you might think; especially when you hit a financial emergency.
Consider a budget
The first key method to ensure that you are well prepared for financial changes is to set up a budget. List every pound you have coming in and every pound of expenditure that you spend regularly. Don’t forget to include everything from monthly insurance premiums to weekly grocery shopping, clothing, and petrol and tax for your car.
Allow some contingency within your budget. There may be a bill that you weren’t expecting, such as having to pay for a new tyre on the car or covering the cost of a school trip. These may not be major emergencies, but they still need paying and if you haven’t included some contingency within your budget, then you may have to sacrifice money from somewhere else in order to pay it. To keep track of your money every month you can look at your online checking account to make sure you are staying within your budget.
Monitor Your Credit Report
Get a copy of your credit report. You can do this for free, or for a couple of pounds, and this will list most of your debts so that you can make sure that you are aware of and planning to repay all of the debt that you have. Also, banks and building societies like Saffron Building Society not only use your credit report when calculating interest rates for mortgages and loans, but if you have a poor credit history then you may not even be able to open a current account.
A ‘Rainy-Day’ Fund
You should always have some money saved for emergencies. At the very least, you should have two or three months’ worth of the money that you spend saved up, and ideally this should be more like six months. Nobody wants to think about redundancy, but if you were to lose your job tomorrow, how long would it take to get a new job and ensure that you have income to cover your expenditure.
Include regular saving as a fixed monthly outgoing. No matter how good your intentions, if you don’t rigorously stick to a saving plan, you may be disappointed with how little you have actually managed to save even after a year.
While you can’t plan for every possible individual eventuality, it is possible to have emergency contingency plans in place so that you can cover necessary payments and essential repayments for a period of time, even if you find you are unable to work through illness, or you are made redundant.