Preparing for the unexpected

Most major expenses shouldn’t come as a surprise.

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In the game of Life fortunes can change with the flip of a card. Reality isn’t always so cruel. Most of the time you can spot major costs well in advance. A leaky roof, for instance, shouldn’t come as a surprise if it’s 25 years old. So what’s the best way to plan for expenses that are likely to occur, while still being able to cope with the ones that are truly unexpected? Here’s how:

ESTABLISH AN EMERGENCY FUND
Set aside enough cash to cover between three and six months of living expenses. Put the money in a high-interest savings account where you can access it without penalty. It’s cheaper than insurance and simpler than using a line of credit. “A lot of people get caught up in paying off only the minimum on a line of credit,” says Pat White of Credit Counseling Canada. “Emergency funds prevent you from falling into that trap.”

TALK WITH YOUR FAMILY
Make sure someone can step in to pay your bills on time if something happens to you. This will help you avoid any additional costs that will decrease your cash flow. Let family members know where you keep your financial documents so they can address matters on your behalf.

USE INSURANCE
Any family member who is a major contributor to the household’s finances should have life insurance. But how much insurance do you need? As a rule of thumb, plan for around eight to 10 times your salary. Insurance through your employer’s group benefits plan may suit your needs; if not, consider buying extra coverage with affordable term-life coverage. To keep costs in line, check out workplace benefit plans. These plans often include disability insurance, but watch out for the cap—it may not be enough.

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