Many Americans never prepare for life changing events because most often they don’t believe it will happen to them. This often causes many people to never prepare for anything that could cause severe financial hardship. Many Financial Advisors instruct people to build an emergency fund so that they can protect themselves from disaster. There are several life changing events that you should prepare for. They are:
1. Medical problems – most Americans don’t feel they will ever become ill and will live forever. Young adults are really susceptible to feeling this way. Middle age and older adults begin to realize that they need to protect themselves from costly Medical Care. Medical bills are the leading cause of bankruptcy today. You have never spent any time in the hospital then you don’t have a clue as to how much it can cost. Hospital bills and treatment can easily run into hundreds of thousands of dollars.
2. Job loss – most people feel they have job security and are suddenly surprised when their employer either closes shop or terminates employment. But now they have built a lifestyle that requires substantial income to make all the payments. But hard times are coming because losing your job will also make it difficult to find a new job. Without money coming in to make payments you will fall behind with your creditors. Those late payments will be reported to the credit bureaus and will lower your credit score substantially. This lower credit score will also make it difficult to getting a new job because many employers are reviewing credit scores as a basis to hire someone.
3. Bad use of credit – many people have a problem controlling the amount of spending. Having a credit limit often means they use the entire limit or Max out their credit card. People who have good credit know that they should not use more than 30% of their credit limit. By keeping their credit balance in check they can continue to improve their credit score. If you have used all of your available credit than your credit score will be greatly reduced. Knowing how to use your credit wisely is critical to having a good credit score. Additionally, if you use your credit properly then chances are you can protect yourself from bankruptcy.
4. Marital breakups – when a family begins to rely on double income to pay the bills, they can really be hurt if divorce happens to the family. Most family’s never think that marital problems will happen to them. If a family has poor money management skills this will put a strain on the marriage. This strain can cause most marriages to go through rough times.
Most family’s can protect themselves by building emergency fund accounts. Knowing how much to build accounts for is often the most difficult part of the equation. I recommend that you start with reducing your debt. Get all of your credit accounts balances to below 30% of your total credit limit. This is the beginning of good money management skills.
Start a savings account that will become six months of your total income. If you have two incomes, then your total figure will be for both incomes. Having this savings account will help you with any major medical bills or if you or your spouse lose their job. The odds of all adults losing their jobs at the same time it is pretty slim but should prepare for the worst case scenario.
Once you have your emergency fund built than I also suggest that each adult open their own savings account. A married couple should have credit in both of their names. Having a savings account in each of their names will also help keep some separation in a family’s funds. This sounds strange but it works well even with a couple who are happily married because the money in this private account can be used to purchase special gifts for their spouse. No one wants a marriage to break up but it does happen.
Avoiding bankruptcy at all costs should be your goal. Bankruptcy will decimate your credit for up to 10 years. Good credit is critical in today’s economy and proper management is necessary to obtain good credit. Get a copy of your credit report and review it closely. If you find any errors or anything that is inaccurate dispute that item right away. If you find many items on your credit report that are a problem contact a legitimate credit repair company to assist you in disputing all of the items on your report.