How to Deal With Financial Emergencies
Few things in life are certain, but there’s one thing that you can expect: the unpredictable. Whether the car breaks down or a surprise bill comes your way, unexpected bills are just a part of life — however, we can control how heavily these events impact our financial stability. It’s always a great idea to be as prepared as you can be in the face of a cash emergency.
Need help setting aside those rainy-day funds or handling an emergency expense? Here are a few tips to help you prepare and manage financial emergencies as they come your way.
What to Do Before a Cash Emergency Strikes
Start Saving Now
As impossible as it may feel, the best way for you to take care of an unplanned expense is to have sufficient liquid assets available, or money that’s readily available to you. Not only can you save money on things like interest and fees, but you’ll eliminate the headache of worrying about your credit, repayments and debt.
We all know it’s important to have savings, but many of us don’t actually follow through with putting money away. In fact, a recent survey found that almost one in four Americans don’t have any money saved for emergencies. When you’re living paycheck to paycheck, there isn’t much room to save, but every little bit counts!
Help yourself later down the line by starting or increasing your emergency savings fund. It’s not an immediate fix, but starting to save money now is better late than never.
It’s helpful to set up recurring transfers into an external account, like a high-interest savings account, that’s separate from your normal bank or checking account. This can help you keep those funds separate and out-of-sight, so you’ll be less likely to withdraw money for normal use. As you get used to the reduced budget, you’ll likely realize that an emergency fund can give you piece of mind, which can encourage you to save even more.
Plan for More Than You Think You’ll Need
If you don’t have an emergency fund at all, begin with a $500 savings goal. Once you’ve saved that much, build your fund to $1,000.
However, finance experts recommend even more for your emergency savings fund — many suggest aiming for around three to six months’ salary. This cushion is meant to prepare for things like sudden unemployment, but it also can give you an attainable goal to work towards in case of other unexpected emergencies.
Take your monthly income and multiply it by three. That is the first tier of your savings goal, but don’t stop there! Once you’ve accomplished that, double it (six-months salary) and work towards that.
Apply for Funding
Some forms of personal credit might be a good option to have on hand in case of unexpected bills and cash emergencies, like a line of credit or credit card. These are types of revolving credit, which means that you have the option to borrow money up to your credit limit when you need it. Although you’ll still need to repay the money with interest, having one of these available can help you quickly resolve a cash emergency.
What to Do If You Experience a Cash Emergency
Trim Your Budget
Normally, a trip to the movies, dinner with friends or other small purchases can be fun and rewarding ways to treat yourself within your budget. However, when a crisis strikes, you’ll need to make some sacrifices or even temporarily cut out these expenses. If you really need to cut down, it may help to look for a less expensive living arrangement or method of transportation, which can save you hundreds of dollars every month.
Take a look at upcoming purchases and see which ones you can forego to help balance out your unexpected expense. While it’s a disappointing choice to make, especially when you’re really looking forward to treating yourself, the best gift you can give yourself is peace of mind. You’ll also have confidence in knowing that emergencies won’t completely unravel the budget you’ve so diligently followed to be able to afford what you were saving for.
Commit to a Plan
It may take a while to recover from or repay your debt for the financial emergency, but that’s no reason to throw in the towel! No matter how large it may be, sticking to a new, lean budget will help you chip away at your debt.
Creating a financial timeline can help motivate you to work even harder. You can use this simple debt payoff calculator to estimate how long it may take to pay your debt, or what you need to pay in order to eliminate it sooner.
Try to Remain Calm
Financial emergencies can certainly take a toll on your mental health, but panicking and stress can lead you to make poor decisions you may regret down the line. Whether you have an emergency fund or not, it’s important to remember that you will be able to handle the situation at hand. Tackling the above step can help you stay level-headed in a financial crisis.
Look to Borrow Money
If you don’t have enough money to cover an unexpected bill, and you can’t make payments towards the expense, you can always look to borrow money. There are many ways to do so, from your friends and family to banks, credit unions, online lenders and other financial institutions.
Banks and credit unions are some of the most common sources to borrow money, but it may take several days or even weeks for you to actually receive the funds if you are approved. On the other hand, alternative and online lenders might be able to extend a loan to you in a day or less, but these may come with higher fees than traditional sources. Whatever method you choose, carefully review all the fine print, and make sure that you can responsibly afford to repay the amount in addition to any interest and/or fees.
The information in this article is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.