🎓 How to Financially Prepare For Unfortunate Events

How to Financially Prepare For Unfortunate Events

Life happens, sometimes we are just unlucky, and sometimes we make mistakes but either way, most mishaps and bad luck in life can have quite a financial toll especially if you are not prepared.

Being financially prepared for emergencies is the best way to make sure you stay out of crippling debt and to make sure one mistake does not cost you your entire financial future.

Preparing for emergencies in life is actually step one of becoming financially free because it is so important. Let’s get into exactly how you prepare and some of the other things you can do to prepare extra.

If you are already struggling with debt you need to put aside $1,000 first. This is so if a small accident happens you don’t need to dip back into debt to fix it.

Once you are out of bad high-interest debt you then want to create an emergency fund. This emergency fund should be 3-6 months of your expenses. So take all the money you spend a month on things you need like housing, groceries, food, and utilities multiply it by 3-6, and then that is how much you need to have saved.

Once you have a great emergency fund you will likely want to start investing to grow your wealth. Do not leverage risky assets and only invest money you are okay with losing in super-risky assets like crypto. Also if you plan on investing in real estate you will want roughly $10,000 in cash for emergencies when you start and roughly another $5,000 for every additional single-family unit you have, or 3-6 months of operating expenses for the property.

In order to make sure big expenses do not bite you in the butt it is also recommended to purchase insurance for things that could get very expensive such as healthcare or homeowners insurance. If you are investing in assets like real estate you can get insurance for a lot of different things to make it less risky.

The goal of planning financially for emergencies is to make sure you can stay in the game. If one accident is enough to take you out and wipe out all your investments you could lose everything. Make sure to have cash on hand so you do not lose everything

Why Investing Too Much is Actually Bad

Like we have talked about if you do not have enough cash on hand and something goes wrong you can be in big trouble. In investing, we also have a term called liquidity. Liquidity is how easy it is to access the value of an asset. For example, a stock for a large company like Apple is very liquid because you can sell it almost any day very easily. Real estate is not liquid because it costs a lot of money to sell and can take multiple months.

Liquidity is important in order to handle emergencies but there are other reasons you might want to have cash reserves rather than just for emergencies.

Berkshire Hathaway, one of the biggest investment firms has almost 30% of its investments in just cash. This is so they can jump on opportunities as they are presented. Just like how you can sometimes be unlucky in life you can also be randomly lucky. If you do not have the liquidity or cash for a lucky situation like a great investment that can double in the next year you can miss out on great opportunities.

A lot of the most successful people in the world got to their position because of luck, but it was being prepared with cash on hand that let them take advantage of their great luck. You might not be lucky enough to become a billionaire but there are situations that could bring you great wealth presented all the time. Maybe your neighbor needs to sell their house fast so you can buy it at a great discount, or maybe a friend is trying to sell a great business because they are moving on to something else. Everyone has chances to be lucky and by investing every last cent you might miss out on those chances.

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Other tools

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