Personal Finance: Prepare for the Worst

All throughout our life we face uncertainty and surprises that we never saw coming. Your personal finances are absolutely no different. It is a terrific idea to lay out a developed plan of what your expenses will be, but you must realize you will always have expenses come up that you haven't expected. Some people hate to talk or think about the things that could possibly go wrong because they believe it is simply being pessimistic. I fully believe that preparing for the worst, while still hoping for and expecting the best, is the wisest move one can make financially.

Sit back and consider all of the things that could change in your life and how those would affect your situation financially. It is difficult to think about, but it is always possible that you or someone in your family could lose their job. If one of the main income sources in your family abruptly stops coming in, it will definitely change your financial situation. Another area that can change drastically is the overall economic picture. While many think it isn't possible, another depression is definitely not outside of the realm of possibilities. The unemployment rate right now is extremely high, but it could certainly get higher. Expenses will change based on the economy as well. Transportation costs and the cost of items such as groceries are a good example of constantly changing expenses.

How do you go about preparing for the worst in your personal finances? First of all, there is obviously no way that you can see everything coming. The main goal you should have is to make sure that you have what many experts call a "rainy day fund." This serves as an emergency fund with cash that sits in something like a money market or a deposit account. It is important to make this money completely accessible so that when it is needed, you can get to it quickly. At the very minimum I believe you and your family should have enough money in this rainy day fund to cover your living expenses for at least three months.

Preparing for the worst isn't any fun, but it is the wise thing to do in today's uncertain economy. At some point when you least expect it, you may end up being very glad you prepared as well as you did!