Unexpected financial emergencies can strike at any time. And, these emergencies can leave you no choice but to borrow money, potentially at high interest rates. So now is the time to ensure you give your budget a bit of breathing room in case the worst happens.
What Are Some Financial Emergencies?
First, what exactly are financial emergencies? Well, they can really be anything that is unexpected and not planned for.
- Job loss
- Natural disasters like tornados, hurricanes, and floods that damage your home and belongings
- Car accident
- Unplanned medical debt
- Emergency pet care
- Emergency home repairs
- & more
The fact is, we can’t always prepare or stop these emergencies. No one wants to be hit with a huge medical or vet bill. And no one expects for bad things to happen all at once either. But what we can do is financially prepare for unexpected financial emergencies…before they happen!!
How Much Money Should You Have In Case Of An Emergency?
So, if you’re preparing for an unexpected financial emergency, how much money should you have saved? Well, that will all depend on you, your situation, and your finances. But typically, experts recommend at least three to six months in savings.
However, if you feel more comfortable saving more, and have the financial means to do so, I’d highly recommend it.
Is $20,000 Enough For An Emergency Fund?
It can be! Again, this will all depend on how much you need to survive for a few months, or even up to a year. For example, after a natural disaster, many people need to quit their jobs, move, or any other number of things. I’m sure $20,000 would go a long way in helping to pay for those expenses.
What Kind Of Financial Emergencies Are More Likely To Happen?
Depending on your location, age, and family history, you may experience any number of emergencies.
- Florida residents are more likely to have to evacuate during a hurricane than people who live in South Dakota.
- People with a family history of heart attacks are more likely to end up in the hospital for the same emergency.
No matter what, no one can fully prepare for something that may or may not go wrong. You can be the world’s best driver, and still get into a car accident if someone else runs a red light. The best thing that you can do for yourself is financially prepare.
When preparing for unexpected financial emergencies, I also recommend keeping cash on hand. You never know if you’ll be able to pay with your card, or get access to your funds via your bank.
Now, I wouldn’t recommend keeping your full emergency fund in cash at home. But, a couple of thousand dollars (think $1,000 to $3,000 max), put in a place only you know about, is a smart move. That way, should you ever need it, you have instant access to it and can take it with you until you can get the rest of your money.
Related: Should You Use Cash or Credit Cards?
How To Prepare For Unexpected Financial Emergencies
Now, what are the steps that you need to take to prepare for unexpected financial emergencies? Here’s what you need to do.
Build An Emergency Fund
First things first, build your emergency fund. Again, experts recommend at least three to six months of living expenses. This will be your best bet against just about any emergency that can come your way.
Of course, you don’t have to save a full three to six months right away either. You can always save bit by bit per paycheck, save tax return money, or any other number of things to build up your fund. But whatever you do, try not to touch it unless you absolutely have to.
Maximize the Value of Assets
You need to know your options. For example, if you have to lower your grocery bills, is there extra food in the house, such as dry goods and canned items? If you have frequent flyer miles, you could use them toward emergency travel. And, gift cards can be either sold for cash or used to purchase essentials.
Each of these things is helpful for lowering monthly expenses. Still, they are only helpful if you know you have them and know how to use them. By knowing what you have on hand, you can also avoid purchasing unnecessary items.
Take Care of Debt
Whether you have a car loan, student loans, or other debt, you are paying interest on that balance every month. That can take up a large part of your budget. So, it’s a good idea to deal with this debt as soon as you can.
For example, consider refinancing your student loans into a new loan from a private lender. By refinancing student loans, it is a great way to lower your monthly expenses. That way, you can put the money toward something more important, like building your emergency fund or stocking up on needed items.
Related: What is the Snowball Debt Plan?
Secure a Better Credit Card
If you have a balance on your credit cards, you might consider transferring it to a card that has a lower rate. When you don’t pay as much interest, you will be better prepared to pay the debt off so you can set more money aside for a financial emergency. Or, it could give you more breathing room in your budget.
It is important to determine whether the amount you save will be greater than any fees you pay to transfer the balance. If you are moving the balance to a new card that has a low APR, it is important to pay everything off before your rates go up.
Another option is to determine whether the credit card company would be willing to lower the monthly interest rates. In some cases, a company will do this if they really want to keep a customer. It is easier for them to keep their current clients instead of finding new ones.
Earn Extra Cash
There are lots of things you can do to make more money. Whether it is selling items you no longer need, freelancing, getting a part-time job, or even babysitting, you can find a side job or gig that fits your needs.
You might not feel you are getting that much money, especially compared to your current position, but even a little bit will add up if you earn it consistently. And, that’s just more money to stash away for a rainy day (or unexpected emergency).
Take Advantage Of Emergency Relief
Last but not least, don’t be afraid to take advantage of emergency relief. Sure, it’s possible to save up three to six months of expenses. But sometimes, expenses still eat up your emergency fund. Or, events like a home burning down or a death in the family turn our world upside down, and we can’t keep up with payments until insurance kicks in or we can find a better place.
In cases like this, it’s okay to reach out and ask for help. No one expects you to be able to afford thousands (if not hundreds of thousands) of dollars to fix an unexpected emergency.
Preparing For Unexpected Financial Emergencies, It’s Possible!
So there you have it, how to prepare for unexpected financial emergencies. No matter what, the sooner you get started, the better. No one ever regrets being better prepared for the unexpected.
What do you think an emergency fund should be for unexpected financial emergencies?
AUTHOR Kimberly Studdard
Kim Studdard is a strategy consultant, product launch expert, and mastermind behind the www.theentrepremomer.com. When she isn't spending time with her daughter and husband, or crying over This Is Us, you'll find her teaching other mompreneurs how to scale their business without scaling their workload.