When it comes to money, having a backup plan in place is always a good idea. Everything seems to cost money nowadays, and it often feels like there isn’t enough in the budget to go around. From the recent VAT increase that caused goods and service prices to increase, to unexpected expenses that crop up in daily life from time to time, a backup budget can save you from falling short financially.
How to draw up a good financial backup plan
A financial backup plan involves creating a budget for unexpected and emergency funds, and saving your money to always ensure this budget is met. The total amount of funds you save depends on your personal financial capabilities, but it should ideally be high enough that you are able to sufficiently cover any emergency expenses that you can foresee. At the very least, this backup budget should help you so that you are never broke between pay checks. Many people prefer to keep this backup fund in a separate bank account, so that it is not accidentally used for regular expenses when paying from a main bank account.
When should you need to use your backup fund?
A backup fund should be for emergencies and unforeseen expenses. It should not be used regularly or for your usual monthly expenses, unless you face an emergency in which your regular income is compromised. This could occur when you lose your job unexpectedly, or when you receive a reduced or a delayed pay check, for example. Emergency expenses that you will likely need to use your backup fund for could include anything like medical bills after an accident or illness, replacing belongings that were stolen or unexpectedly damaged or lost, or a vehicle breakdown. When your monthly expenses increase, such as your rent, school fees or general goods and services costs, you are usually notified ahead of time and can budget accordingly. However, a backup fund can help you manage these increased expenses until you can adjust your regular budget for them, if you need. For more financial backup plan advice, contact One Debt today.