People tend to be optimistic about what the future holds and the extent of their control over it, which makes this a key obstacle to getting financially prepared. Do you often think, ‘this won’t happen to me because [insert reason]’? This is called an optimism bias – a cognitive bias that causes a person to think that they are at a smaller risk of experiencing an adverse event than others. Such optimism makes us less likely to think about the bad things that may happen, and can put you in a very stressful situation if an emergency occurs. This may force you to take on debt that you can't really afford. Moreover, because people tend to underestimate the amount of time it will take to complete a task, which is known as the planning fallacy, being optimistic about your finances can make you end up not being able to repay your debt on time.
Can’t perform your job without your car? Do your commitments require you to always be reachable on the phone? These are the things that you should insure first, as losing them will put you into a very stressful situation – especially if these are expensive to buy or fix. On the other hand, if you usually eat out, a fridge break won’t affect you that much. Try to find the right balance between protecting yourself from emergencies and spending a substantial amount of money on insurance.
Sometimes bad things happen no matter how hard you try. A road accident made you miss your flight even though you departed two hours early? A pipe leak flooded your home? These are things you can’t reasonably predict, and they always seem to happen at the worst possible moment impacting your financial stability and wellbeing. Prepare for them by having access to an emergency fund, be it savings or a source of affordable credit so that you’re not forced to take an expensive loan that you might not be able to repay.
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Even if you’re financially prepared for emergencies, money may not be the only thing that you may need. Even if you have the funds to repair a car or a burst pipe, these things take time, and may force you to seek alternative solutions for the short-term. To avoid last-minute stresses, make sure that you have access to such solutions. Can a friend or family member put you up should you have to vacate your home? Do you have an alternative way of getting to that important meeting or picking up children from school if your car doesn’t start? Having a plan B for the most important things can save you a lot of stress and money.
While some emergencies are unpredictable, some can be predicted and prevented. For example, get a protective case for your phone if you drop it often. Don’t talk on a hand-held phone while driving – it’s more dangerous than drunk driving! Keep up to date with your health checks to avoid a costly disease or dental emergency.