Could you go on paying for your car if something happened, leaving you short of money? Or if you bought your car in cash, would you be left with little or no savings to cover unforeseen expenses? Read on to find out how you can protect yourself from the unexpected.
Plan for the unexpected
It’s important to have a financial back-up plan for if something goes wrong. Even so, most people don’t actually have one.
If you buy your car through a loan or car finance plan, there are many ‘what if?’ situations which could make it difficult for you to keep up the payments.
Anything from a major event such as job loss, divorce, accident and illness, through to repairs to your home and household equipment breaking down.
Help shield yourself against their financial impact by making sure you:
- Have Insurance policies covering your health, your house and contents, accidents and unemployment
- Develop an emergency fund – savings to cover at least three months of expenses.
If you pay for your car in cash, you won’t have the worry of meeting monthly car payments.
But you might be left with little or no savings as a result. However, you own your car so you’re free to sell it to raise money if necessary.
Build up an emergency fund
A good rule of thumb is to have three months’ essential outgoings in an instant access savings account.
So if, for example, you spend £1,500 a month on mortgage or rent, food, heating bills and other essentials, you should aim to build up £4,500 in your emergency fund.
For tips on building up your fund and other ways of protecting yourself from the unexpected, read our guides:
Emergency savings – how much is enough?
Can you insure yourself against redundancy?
Protecting your income or borrowing
If you want to find out how much you spend each month, use our Budget planner – it only takes a few minutes.
Your next step
This article is provided by the Money Advice Service.
