Planning For A Rainy Day

Have you ever wondered what would happen if you suddenly lost your job? Are you financially prepared to deal with a sudden loss of your income stream? Do you have a backup plan and reserve funds for a “rainy day” event?

Hopefully, you’ll never end up in this situation; however, life doesn’t always play out the way we hope it will and change is always constant. While there may be early warning signs or indicators that something may be brewing, without a clear sense of urgency, there may be no desire to act without knowing for certain something is imminent. Sure, you can actively look for new job opportunities (and there’s nothing wrong with that) but when it comes down to timing, events don’t always play out the way we would like them to.

That said, if you haven’t already started to, it’s important to create a safety net or security blanket for yourself, and if applicable, for your family. Start setting aside reserve funds for a “rainy day”. You’ll want to have reserve funds that will cover no less than three (3) months of expenses to start, but ideally, you’ll want to grow it to cover anywhere between six (6) months to one (1) year worth of expenses.

You’ll always want to maintain a stable reserve of funds. In good times, you can tap into reserve funds to meet short-term cash needs (ex: major investments and capital improvements like replacing major appliances, home improvement, etc.) but keep in mind that you need to replenish those funds as additional funds become available. Don’t get into the habit of draining your reserve funds and only realizing there’s a problem when you have an “Oh No!” moment. There is a REAL inherent danger when using reserve funds irresponsibly. Don’t be irresponsible! Of course, you’re better equipped to assess your financial situation at any given time, so you need to make those responsible decisions when it comes down to whether you should tap into your reserve funds in various situations.

Also, be sure you are living within your means. Plan and budget for your expenses. Don’t get into the habit of spending what you don’t have or what you can’t afford simply because your credit card issuer or bank is extending a line of credit to you. A credit line is NOT free cash. If you are constantly paying the minimum balance on your credit cards or overdrawing your credit cards or bank account, you are NOT living within your means.

Make it a point to periodically review your spending habits; trim any non-essential expenses. It’s okay to splurge every now and then but don’t throw your hard-earned money down a big, black hole. You want to be responsible with your finances. If you run into a “rainy day” situation, you’ll be in a much better position if you’ve been responsibly managing and monitoring your finances.