If you are an ardent follower of this column, you will have known by now that living within a budget is the first step towards financial stability. Linked to that, make sure you save some money put away before you start spending based on a planned budget. However, even the best-planned budgets can fail to account for unexpected events. This is where contingency planning and budgeting comes in. With a good contingency plan in place, unforeseen financial issues won’t cause as much damage as they otherwise could.
The purpose of a contingency plan and budget is to deal with unexpected financial problems that arise suddenly. Contingency budgets are different from long-term financial planning, such as the planning and saving you need for retirement. Contingency planning prepares for things such as job loss, reduction in income, unforeseen home repair expenses or unexpected medical expenses. When one of these situations arises, you will be able to implement a prepared contingency budget, altering your spending and saving to account for your family’s new financial situation.
Each household’s contingency planning and budgeting is different. In general, a contingency plan should eliminate unnecessary expenses and reduce necessary ones. For example, you may be able to identify monthly bills that you could eliminate in an emergency such as digital television (DSTV) and costs towards lawn (kapinga) care. Other expenses such as car expenses can be reduced if you cut down to a single car for your family or make plans to drive less as a means of saving on the cost of fuel.
A contingency budget starts with your standard household budget. If you don’t already have a monthly budget for your family, create one based on your current level of income and typical monthly expenses, including fixed costs such as rent and variable costs such as entertainment, food and recreation. Use the budget as a basis for identifying cuts needed for a contingency budget. Also consider extra sources of income in an emergency, such as property or investments you can afford to sell.
Blessed weekend to you and yours as you develop a contingency plan and budget—because surely, some unforeseen situations are bound to arise in life. Fore warned is fore armed!