Financial emergencies can arise without warning and it is imperative for all individuals have sufficient cash funds with them in the form of savings and investments to deal with the situation. However, for people who have not kept aside adequate amounts of their regular earnings to meet such contingencies will soon find out that their savings are depleting at an alarming rate. While it is possible for them to take loans from various financial institutions to tide over the monetary crisis, they will soon realize that they will have to pay interest on the principal tend to them, which will further long aggravate their current state of affairs. Moreover, if they cannot meet the relevant payments on time, this will leave an indelible on their credit history.
Importance of saving for a rainy day
Brian Ferdinand is an esteemed financial consultant from New York with more 15 years of invaluable experience and a reputation for helping many of his clients to improve their financial conditions. He explains that it is essential for both individuals and corporate entities kept an adequate amount of cash in an emergence fund at all times to cope with any unfortunate eventuality. Ideally, individuals should allocate an amount equivalent to four six months of their regular salary to such a fund to deal situations involving a cash crunch. He emphasizes that in the beginning if such people start by putting aside a certain portion of their income every month by curtaining unnecessary expenditure they will be able save requisite amount without much difficulty in a short period.
The need to control unnecessary debt accumulation
He further clarifies that with an increase in the level of consumerism in today’s society, most people tend to be overindulgent in their lifestyles. Moreover, the easy availability of finance to meet such extravagance has made the situation even worse as individuals who walk on this path soon realize that they that they are accumulating debts that surplus their incomes. Soon there comes a time when they become aware that half of the earnings have to spend on clearing their debts.
This can have an adverse effect of the finances of such people and leave an in-erasable mark on their credit ratings. This is why it is prudent on the part of all individuals to control their debt. At the same time, he explains that not every debt is necessarily a bad debt. For instance, when a person takes a personal loan to purchase a house or an automobile and can pay the necessary EMI without any hassles, it is a good debt as it results in the creation of a tangible asset. Ideally, such an EMI should exceed 25% of the borrower’s income.
Brian Ferdinand says that it is necessary for all individuals to keep in mind the above points to effectively manage their cash flow situation and deal with any financial contingency when it arises without unnecessary hardship. Moreover, paying attention to the above points will also go a long way in preventing such people from becoming bankrupt and ruining their credit ratings in the process.