Dealing with a Financial Emergency
Life is unpredictable. Unfortunately, this means that sudden costs or expenses could come up when you don’t expect them. Your home could need a sudden repair, your car could break down, you could lose your job, or you could find yourself with large medical bills. When these situations happen, they are usually unexpected and they typically come up suddenly.
A sudden financial emergency is stressful. Not only will you need to come up with a way to pay for the unexpected expense (such as repairing your car, buying a new fridge, or fixing a hole in your roof) but you’ll also need to be able to afford the rest of your expenses and keep the lights on in your home and food on the table. This challenge can be a difficult one (especially if an illness or job loss results in a loss of income) and it can lead to a lot of anxiety and worry.
Here are some tips that can help you handle a financial emergency.
Stay Calm and Review the Situation
When a sudden financial emergency happens, the first instinct is often to panic. This is natural, but the downside is that people are more likely to make rash or emotional decisions when they feel stress. These decisions aren’t always thought through fully and they could lead to complications going forward.
That’s why it’s important to not allow panic to make your decisions for you. While nearly anyone would feel worried and stressed when faced with an emergency, it’s important that you don’t make any big decisions while you’re still feeling out of sorts. Instead, wait until you’ve calmed down and can think rationally before you deal with the situation.
Look at your Savings
Once you’ve calmed down, take a look at your savings. If you have an emergency fund, figure out if it’s large enough to afford the expense or help you manage the emergency. An emergency fund can help you pay unexpected bills. It can also make it possible to afford your living expenses until you can get a new job, in the case of a job loss. Having an emergency fund means you won’t have to take on additional debt to cope with your situation.
If you don’t have an emergency fund, or if what you have isn’t enough to help, you’ll need to come up with another way to handle your situation.
Review your Budget
Even if you have an emergency fund large enough to help you deal with a financial emergency, you’ll still need to look at your budget. After all, once you’ve depleted your emergency fund, you’ll need to find a way to build it back up.
Whether you have an emergency fund or not, take a look at your budget and prioritize your spending. Some items – such as food, shelter, utilities, etc. – are more important than other expenses, like entertainment or clothing. Looking at your budget can help you see where you are spending your money and find areas where you can reduce spending to make ends meet. If you don’t have a budget, this is a good time to make one.
Once you’ve looked at your budget, figure out what you can cut. Expenses like eating out, going to the movies, and buying new clothes can easily be cut, at least temporarily, to help you get through your emergency. You may also want to consider coming up with ways to reduce other expenses. This could mean cutting cable, switching to a cheaper cell phone plan, or adjusting your grocery shopping habits to save money.
Contact your Creditors
It can be hard to pay your bills and keep up with debt repayment costs when you’re experiencing a financial emergency. If you’re not able to make payments to your creditors, it’s often a good idea to talk to them as soon as possible, before you miss any payments if possible.
Explain your situation and let them know what steps you are taking to improve your financial health. They may be willing to reduce interest charges, extend the time you have to repay your debt, or even defer payments for a time. If you can make alterative arrangements with your creditors, make sure you get the new terms in writing.
Ask for Help
If you’re having trouble affording your bills, know that there are options out there to help you. Consider speaking to a Licensed Insolvency Trustee about your situation. They will be able to help you understand the options that exist so you can make the right decision for your future.