Financial emergencies are an unfortunate fact of life, so it’s better to be prepared for when they occur than to bury your head in the sand and hope you get lucky.
When it happened to me, the stress of not knowing where the money was going to come from or even how to start solving the problem created many sleepless nights.
Fortunately I’ve lived to tell the tale and today I’m going to share 6 practical strategies to help you deal with financial emergency the smart way.
How do you evaluate your situation? What kind of plan should you use? What options are there to get emergency funds?
Let’s take a closer look …
- Assess the Problem for the Best Chance of Solving It
It’s only natural to panic when your finances take a sudden and unexpected downturn. Perhaps you’ve lost your job, a marriage or partnership has come to an end, or you’ve come face to face with an unforeseen and crippling expense. Your heart pounds and your mind races, but occupying your time worrying is not going to get things back in order.
Before you can do anything you need to calmly and honestly assess the cause of your financial emergency and how this manifests itself. As the old saying goes; know thy enemy – you can’t tackle a problem effectively without understanding it first.
Did a natural disaster cause property damage, leading to expenses you can’t afford upfront, all of which is compounded by existing debt? Recognizing these causes not only allow you to start putting things right, but it can also help you implement preventative measures for the future.
I hope that by utilizing this guide you might not ever have to face a financial emergency in the first place.
But first you need to take control.
- Take Control with a Budget
Everyone has heard about budgeting and most of us do some form of it, even if it’s just rough calculations in our heads. However creating a concrete budget on the computer was the single most powerful tool that allowed me to overcome my financial emergency and ensure it wouldn’t happen again – you should do it too.
All you need to do is put down the money you have coming in each month and contrast it with what you will be spending it on, including food, bills, leisure, and other expenses.
It really is that simple.
It won’t be long before you have a clear understanding of your day to day finances, where you might be overspending, and where you can cut expenses to overcome your current emergency and to make savings over the long term.
Note: If you’re in a particularly tight spot it is essential to prioritize expenses – do you really need that case of beer? You can do without certain luxuries temporarily to get back on your feet.
But what if your budget fails?
- Create a Failsafe with an Emergency Fund
Putting money aside won’t be easy if you’re already struggling, but as a preventative measure there is no wiser strategy than creating an emergency fund. This is a pot of savings of at least $1,000 that you only touch when faced with unforeseen expenses or emergencies that can tip your regular budget over the edge.
You can build this pot up over time by allocating $50 to $100 of your monthly pay check until it reaches $1,000 or an amount you’re comfortable with. Then for example, when your car breaks down or you’re hit with a medical bill, stress and disaster is averted because the expense is easily covered. You can then fill the pot back up in the weeks that follow to maintain your financial security.
Top Tip: Using a savings account for your emergency fund will allow you to earn interest and make saving a bit easier.
- Make Use of Credit to Bridge the Gap
If you’re like me then you probably have aversion to borrowing money, but in my experience if used wisely, a loan can be a great way to give your finances the breathing room needed to get back on track. MatchedLoans for example allows those who are currently unemployed to borrow up to $1,000 to tide them over until they are in a better position.
An option available to almost everyone is payday loans. While they often get a bad rap because of their high interest rates, if used as intended (to cover unexpected expenses until your next pay day, when you know you’ll be able to pay it back), they are actually one of the most useful forms of credit available when you need cash quickly.
- Insurance as another type of Emergency Fund
Insurance is like an emergency fund, but instead of paying money in to your own account you pay a monthly fee to an insurance company who agrees to pay out when certain terms are met, such as the loss of a job or downturn in health.
The kicker? These pay outs are often much greater than the amount you’ve paid in to the policy or the amount you could realistically maintain in a regular emergency fund.
Of course, if you never face the underlying emergency you will be out of pocket, but that is the trade-off for long-term financial security. Remember, budgeting to include insurance is much easier than having no money when disaster strikes!
- Negotiate to make Repayments Realistic
If you’re in a financial emergency, chances are you owe money to somebody – whether it’s a bill or some kind of debt via previous borrowing. At first glance you may be completely overwhelmed, but it’s actually common practice to negotiate with companies and creditors to make repayments more manageable. After all, if you can’t realistically pay what is owed under the current terms, they aren’t going to get any money anyway.
As long as you’re honest about the situation and make a genuine attempt to meet your obligations, creditors will usually be happy to come to an arrangement that suits both parties. You just have to start a dialogue
One common tactic is to negotiate a payment plan that allows you to spread payments over several months beyond when the bill or debt was originally due. That way the money you owe is still paid, but you have some extra breathing room to raise the funds.
I hope you found these strategies valuable.
By bringing them together I was able to overcome some particularly difficult financial hurdles and am now in a stable position. No matter what your personal situation, I’m confident they can help you too.
Let me know what you think in the comments below and feel free share some of your own tips to deal with financial emergencies.