how to handle personal financesThe best time to prepare for a financial emergency, of course, is well in advance. If you wait until your car dies, or your roof springs a leak, or your air conditioning unit fails in the middle of August...you could find yourself scrambling to be able to find the needed funds.

You'll want to start making a list of all of your expenses - rent or mortgage, car payment, insurance, utilities, grocery bill, cable, gym membership, transportation costs including gasoline or bus fare. If you find ,even this,  too daunting a task, you can simply multiply your present monthly take home pay times six. That number is your minimum money cushion.

Got this take home income number or your expense list ready? Good.

Here are five ways to prepare for financial emergency

Create a financial cushion

These days, layoffs are widespread and even people who thought they had a stable job are receiving pink slips or having their hours at work cut back. Most financial experts suggest having three to six months of expenses socked away in a safe, high-interest savings account or in a certificate of deposit. I find that I sleep better when the emergency cushion is more than six months. Most people don't have the discipline or ability to save up that much money right away, but you can start setting aside money every month until you have saved up that much.

Become major repair ready

You should also make a list of any major repairs that you might need to make. Roof, car, appliances...are they under warranty? If not, set aside some money every month for the inevitable time when you will have to pay for repairs. It may be years before you end up needing that repair money, or a decade...but you're better off setting aside $100 a month or so and having that money available, than being hit by a huge repair bill that you can't afford.

Keeping score with credit scores

Try to ensure that you maintain good credit; pay all of your bills on time and pay down your credit card so you don't owe more than 50 percent of your credit limit. Also, don't get rid of credit cards that you've had for a long time; those cards reveal your credit history, and the farther back your credit history goes, the better off your credit score. If you have good credit, you can always pay for a financial emergency with a credit card or line of credit.

Self discipline can cushion financial bumps in the road

Until you have built a decent financial cushion, you need to be willing to forgo some luxuries. Movies, restaurants, vacations, shopping sprees, expensive salons, even a gym membership...those are luxuries compared to the ability to pay your rent and buy groceries. Spending money on luxuries now is stealing from your future if you don't have money set aside.

Second income can speed security

 Creating a second income before it is needed can increase your speed as you move toward emergency safety. Consider working a second job until you have money put away. This isn't forever; it's just until you have a financial safety net. Also, if you are concerned about job security, take steps now. Take night classes, get new certifications, network with people in your field, and generally make sure that you are prepared for today's job market if you end up being laid off.

These steps do require some sacrifice of time and self-discipline, but if you take these steps now, you'll sleep more soundly knowing that you won't have to worry when an financial emergency arrives at your door. 

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Article provided courtesy of Kamaron Institute Positive Impact Blog and  Visible Strategies Communications