With the arrival of a new year, it’s a great opportunity to set some financial goals. It’s understandable that starting can sometimes be the most challenging part. Life’s unpredictability can impact financial plans, so it’s wise for families to prepare in advance. To help you navigate through, we’ve put together some friendly advice on how to budget effectively for life’s unforeseen twists, ensuring you remain financially resilient in the face of unexpected events.
Embrace Family Budgeting
Budgeting for your family involves monitoring your household’s income and expenses over a period. It’s beneficial to spend money with a purpose, as it provides clarity on your financial outflows. Start by noting down your household’s monthly take-home pay. Next, consider a preliminary budget, dedicating around 50% to necessities like groceries, housing, utilities, insurance, clothing, transportation, and child care. Another 30% could be allocated to leisure activities such as travel, dining out, and entertainment, while the remaining 20% can go towards savings, retirement, and debt repayment.
Identify and Plan for Overlooked Expenses
While most families adhere to a monthly budget, unexpected costs can occasionally disrupt your financial plans. We suggest making a list of potential unforeseen expenses to prepare in advance. This might include home maintenance, special occasions, car repairs, unplanned medical bills, and children’s activities. Include in your budget items like unexpected gifts or emergency bills, so you’re never caught off guard.
Consider Setting Up a Sinking Fund for Your House
A sinking fund might be a new term for some, but it’s a valuable concept in financial planning. It involves saving small amounts regularly for a significant future expense. Anticipate future needs and start setting aside funds – even a modest $25-$50 per month can accumulate significantly over time, preparing you for future home repairs or replacements.
Maintain an Emergency Fund
Emergencies are unpredictable by nature. It’s crucial to have an emergency fund for such unforeseen events. Begin with a goal of $1,000 and gradually add to it. Remember, this fund is strictly for essential, unexpected expenses. Before using it, ask yourself if the cost is unforeseen, urgent, and absolutely necessary. Distinguish it from your sinking fund by remembering that the emergency fund is for immediate unexpected events, while the sinking fund is for future possibilities.
Schedule Regular Budget Meetings
Regular discussions, either with a spouse or an accountability partner, can greatly assist in managing your family’s finances. These monthly check-ins should cover all expenses, ensuring nothing is overlooked and promoting responsible spending and saving.
Open a Dedicated Savings Account
Once you’re comfortably managing your expenses, consider opening a separate savings account. This account should be reserved for emergencies only, ensuring you don’t dip into it for regular expenses. Decide on an affordable amount to save each month, and watch your savings buffer grow.
Don’t Underestimate the Importance of Insurance
Insurance is a crucial element in safeguarding your financial future against unexpected events like accidents, illnesses, or natural disasters. Make sure your family is well-protected with suitable insurance coverage. When selecting insurance, consider the insurer’s reputation, policy conditions, deductible levels, and premium rates. Proper insurance is an integral part of any financial plan, providing peace of mind and security.
At Duliban Insurance Brokers, we understand life’s unpredictability and are committed to ensuring your family is well-protected and financially prepared for the new year. For more information and personalized advice, feel free to get in touch with us.
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Sources:
https://www.ramseysolutions.com/saving/stop-the-panic-sinking-fund
https://www.ramseysolutions.com/saving/how-to-save-money-fast
https://www.ramseysolutions.com/saving/how-to-budget-for-unexpected-expenses
https://www.experian.com/blogs/ask-experian/how-to-plan-for-unexpected-expenses/#a3
https://www.wellsfargo.com/financial-health/prepare-for-financial-emergencies/
