Handling the Unexpected

There's nothing harder to plan for than the unexpected. Many times the emotional impact is hard enough to handle without financial uncertainties. The key to successfully surviving these life-changing events, financially at least, is to anticipate hard times. Shore up your financial situation now, and give yourself some breathing room.

Build an emergency fund to get you through the rough times. You'll need three months' living expenses as a minimum, more if your industry is subject to prolonged layoffs.

Set money aside every month. But unlike retirement savings, keep your emergency savings fairly liquid, in a savings account or a money market fund. Hopefully you will never need it. But if you do, you'll be glad it's there.

A New Financial Picture

Create a budget by writing down your expenses to find out where your money is going. Pull out your credit-card bills and bank statements from past years as guides to your spending habits. Then estimate how much your new bills will be. Be sure to include expenses for entertainment, clothing and other major spending categories. Include some money for savings. It may take several months to fine-tune your budget.

Now estimate your monthly income. Don't include potential income — only income you are sure to receive. Spousal and child support may be included, but only if you are confident that your spouse will pay them.

Check your budgeted expenses against your income. Do you have more going out than you have coming in? If so, you need to cut expenses. Entertainment bills are easier to trim than fixed costs such as utilities and housing. Keep trimming until you have enough income to cover your expenses. It may hurt at first, but settling into your new financial situation is critical to long-term financial fitness.

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