Despite all of the technological strides that have been made, the education of meteorologists and the ability to monitor the weather systems, no one to this point has been able to create the weather nor have they been able to completely control how a weather pattern will play out.
Consequently, weather storms affect our nation and sometimes hit certain parts of the country with devastating results. Oddly though, these same storms can basically hit the same area yet certain geographical areas escape unscathed.
Sometimes the reason that some households or businesses minimize the adverse effect of storms in their life is that they are prepared for such a weather emergency.
That preparedness may be through the use of a storm cellar, elevation of a home’s foundation to mitigate flooding, having an emergency radio, receiving an advanced warning, etc.
The best line of defense for unexpected storms or weather-related tragedies is by having insurance.
The truth can be said of financial storms in the lives of people.
These financial storms can appear as medical emergencies, loss of a job, loss of a breadwinner or income counted on in the household, major household repairs or perhaps just a simple replacement of a needed appliance.
It was recently reported that most American families live from paycheck to paycheck. In conjunction with this staggering revelation is that if needed most families could not scrape together $1,000 to cover a financial emergency.
To cover the cost of these emergencies, families would rely on a number of other options. Those options could include the use of their credit cards, short-term loans at high interest, not paying other bills in order to cover the emergency, etc.
Therefore, to minimize and weather the financial storms that will appear one day or another, it is important to implement certain insurance policies or strategies to navigate these financial storms of life.
Emergency fund or rainy day fund
One of the best ways to weather the financial storms that intrude upon life is to have a rainy day fund. A rainy day fund is an emergency pot of money that is available to the family for a difficult financial period caused by a hardship.
Many experts suggest that the rainy day fund is at an amount that is equal to 6 months of expenses. Therefore, if the monthly expenses are $2,500 a month, the total rainy day fund should total $15,000.
To achieve this goal can be an upward climb, but can be accomplished. The first order of business would be to budget this money and set it apart on a monthly basis or time frame that is convenient. Once budgeted, it should be the first payment you make.
The money can be set up in an interest-bearing account that will provide a somewhat modest return on the dollar. Examples could include a high interest bearing savings account, money market or other such financial vehicles that will return a decent rate of interest and yet be available in the event of an emergency without incurring any penalties for withdrawal.
This money can be accumulated over time by not eating out as often, cutting back a bit on one’s recreational budget line item, getting an extra part-time job, working overtime, etc.
This is financial discipline, but one worth exercising as it will lead to financial freedom and security.
Reduce credit card debt
Another strategy that can be implemented in case of a financial storm is to not utilize credit cards unless the balance is paid off on a monthly basis. It will probably come as no surprise that the interest rates charged by credit cards can be excessive.
In addition to high-interest rates charged, the credit card companies generally only require a small payment each month, but charge the consumer interest on the balance remaining. These interest charges can be significant and certainly add up as a cost to you as the customer for the privilege of using the credit card company’s money.
For example, if a consumer has a $3,000 credit card debt, at 15% interest and the customer only pays the minimum each month, the total interest paid over the length of the credit card interaction will be $3,641. The length of years for the repayment of this credit card balance will be 16 years or $227 per year or almost $19 per month.
The significant interest that the consumer would save by not carrying a balance on their credit card could be applied to building a rainy day fund.
Invest your money
An additional strategy to implement on weathering the financial storms of life is to build on the rainy day fund that will be accumulated. This means that once you have achieved the goal of setting aside enough money for the storms that may occur in the short term, it is time to look beyond the immediate and into the future.
Therefore, a long-term goal that individuals and families should address is by starting to invest in their future by contributing to financial vehicles that have proven themselves over the years.
Specifically, these financial vehicles can be stock or bonds that have historically provided good financial returns on the investor’s dollars.
This way of surviving the financial storms of life is not intended to be utilized over the short-term, but these are vehicles that will probably provide a good return over the years into the future.
This is based on the proven financial strategy of leaving the money in a solid market investment, continuing to invest, and allowing the market to work its financial magic.
Live within your means
Finally, another excellent strategy of weathering a possible financial storm is to stay within one’s financial means.
Simply stated this means that rather than purchasing, on credit, new items for the household or a new vehicle or taking that dream vacation, that it may prove prudent to make the furniture last one more year or invest in that vehicle mechanically to get two more years of service.
Additionally, if the family is fortunate to receive a pay raise, perhaps a good strategy would be to continue to live on the existing salary or salaries as if the pay raises never occurred.
In turn, this money could be deposited in that high-interest bearing account or invested in the stock market.
This strategy can be very powerful financially as the family is already managing on the existing wage and any additional amount, treated as if the money wasn’t there would be an excellent step in maintaining a comfortable lifestyle and staying within one’s means.
Another possibility of staying within the financial means of the family’s budget is to look at the expense side of the ledger. Perhaps, there are some expenses that can be eliminated or cut back on.
A prime example would be to cut back on one’s cable service or cancel the service altogether. The argument could easily be made that who can watch that many channels anyway. Besides, the entertainment budget could be radically reduced through this course of action and substituted with an equally entertaining alternative at a reduced cost.
Again, the amount of money saved through this course of action could be invested in either short-term or long-term financial goals.