Financial emergencies happen unexpectedly, and their impact can be felt for a lifetime. It could be a lost job, car accident, injury, illness, or the death of a loved one. When you’re faced with a hardship, how can you overcome it?
The key to overcoming a financial emergency is to plan ahead. There are easy steps you can take, even when it feels overwhelming and impossible. Keep reading to learn the best way to create your financial emergency plan.
Build an Emergency Fund
This is the first, and most crucial, step. Having some money saved up can help you get through financial emergencies when they strike. You’ll be less stressed knowing you have a backup plan for covering expenses.
Here are some ways to get the ball rolling:
- Prioritize Expenses and Cut Spending: Evaluate where your money goes each month and try to cut where you can. Recurring subscriptions can really add up, especially those that you’re not using! Always check your statements to make sure you’re being charged correctly.
- Pay Yourself First: Once you’ve cut some spending, immediately take those dollars and put them into a savings account. Even if you can only afford a little, those amounts can make a difference over time. Ideally, you’ll build the account up to a few months’ worth of your income.
- Negotiate: If you have trouble making credit card payments, try to get a lower interest rate. You can also freeze your account to pay down the debt easier. If your cable or phone prices keep increasing, call and ask for lower rates. If they won’t lower the price, you can begin cancelling services altogether.
Insurance acts as a safety net when life gets messy. People often overestimate the cost of insurance. There are many affordable options. Working with an independent insurance advisor can help you get the best rates and the perfect coverage for your situation.
Here are the types of coverage you should consider:
- Health Insurance: for medical emergencies, illnesses, and injuries
- Car Insurance: for car accidents or damage from natural disasters
- Homeowners or Renters Insurance: to cover your home and possessions
- Life Insurance: to help anyone depending on your income if you were to pass away unexpectedly
If you’re faced with an emergency and you don’t have enough to get you through, you can turn to these options:
- Friends and Family: It’s tough to ask for help, but friends and family may be able to help out
- Nonprofit Organizations: They can provide job placement assistance or provide food and shelter.
- Unemployment: If you lose your job, make sure to apply for unemployment benefits.
- Your Retirement: As an absolute last resort, you may be able to take a loan out against your retirement accounts. Be careful with this option. You’ll be charged fees while putting your retirement on hold.
Having a plan can help ease the stress of financial emergencies. Building a savings account and having insurance as a safety net will help you get through the hardships in life. When faced with an emergency, don’t hesitate to ask for help from the resources around you. Should you find yourself without these resources, we encourage you to research our affordable emergency loan program.