Emergency expenses? 5 tips for tackling a financial emergency
Posted September 2017 by Melissa Abraham-Smith
Are you or someone you know currently faced with a financial emergency? Have unforeseen expenses left you wondering how you’re going to make ends meet?
Whether it’s a leaky roof, unexpected medical expense, or a car that’s finally given up the ghost, a sudden change in finances can be cause for panic: food, bills, and utilities still need to be paid for.
At times like this, it's easy to let stress get the better of you, reacting with rash decisions that can stretch an already tight budget. That’s why today we’re sharing our tips and tricks that will help you through most financial emergencies. With them, you’ll be back to walking the path to financial freedom sooner rather than later.
Up first - the simplest step of all, asking for help...
1. Reach out and ask for assistance
In the face of a financial emergency, it can feel like you have the weight of the world on your shoulders. Going it alone is a fast track to more than a few restless nights, so ask for help instead.
Opening up to people can be difficult, but it’s one of the easiest ways to lighten the financial load and make the best of a bad situation.
To start, sit down with your creditors and talk them through your current situation. Believe it or not, it’s actually in their best interests to help you meet your payments, even if this means paying a lower interest rate over an extended time period.
From here, work through any remaining service providers, utility companies, or other recurring expenses. While you’re at it, look into any help or support mechanisms that might be in place for exactly this scenario:
- Are you repaying student loans? Ask about deferring your payments for a set period of time.
- Credit card repayments on your mind? Call your credit card company and see if they'd be willing to defer or alter your payment schedule until you're in the clear.
- Unsure how you're going to cover your gas or electricity bills? Most utility companies have policies in place to help you if you're struggling to pay your bills.
- Repaying a home loan or mortgage? Depending on the kind of loan you have, you may be able to have your monthly repayments temporarily reduced.
- Were you injured at work? Inquire about the possibility of workers’ compensation.
- Have you lost your job? You may be entitled to various unemployment benefits.
There are also numerous other support groups out there that provide financial support for food, utilities, transportation, and rent for kiwis that find themselves doing it tough. Ask around in your local area, and see what’s available.
2. Tap into your emergency savings fund
Have you ever put money aside for a rainy day? Stuffed it under the bed, in a closet, or - better still - deposited it into a high interest savings account or invested it for a fixed term? A financial emergency is the exact kind of rainy day scenario that these funds were made for, so it’s time to break open that piggy bank and get your hands dirty.
Saving is difficult at the best of times, so your emergency fund might not be large enough to cover all of your expenses, but don’t panic! Even a small amount of cash kept in reserve can help get the ball rolling while you wait for finance or insurance to clear.
Has your fridge broken down? Now you can rent a temporary replacement. Car broken down? You might be able to cover the deposit on a replacement, or at the very least pay for taxi, Uber, or public transport costs.
An emergency fund is for exactly that - emergencies - so make the most of it!
3. Prioritise your spending
There’s never a better time to revisit your budget than in the event of a financial emergency. It’s hardly worth losing your home just to keep your Sky TV subscription on, is it? Obviously not, which is why it’s crucial that you return to the drawing board and prioritise your spending.
As soon as you can, make a list of your current expenses and rank them from highest to lowest priority. Remember, not all expenses are created equal. Money is likely to get tight, so be as harsh as you can!
Once the essentials like shelter and food are covered, look to cut back on non-essential expenses wherever possible. Perhaps a few months sans Netflix won't be too bad if it means you're free from this new financial burden that much quicker?
4. Cover emergency expenses with a low interest loan
Saving can be difficult, so it’s not uncommon to find you lack the requisite funds to cover your expenses in the wake of a financial emergency.
If this is the case, could you really last that long without a car, fridge, or other appliance? What if the emergency is a medical one? Could you really put off any time-sensitive treatments?
The answer, of course, is no. So where to from here? It can be tempting to throw these expenses on your credit card, but high interest rates and high rates and fees could see you staring down a hefty debt once the dust has settled.
Before you do, you should consider whether secured or unsecured finance may be a better option. A loan like this makes your life easier, easing the burden and letting you pay off any looming bills, put down a deposit on a new vehicle, or see you through a few rough months while securing a new job.
As long as you read up on the process, applying for a personal loan is easy! And with just the one monthly repayment to make, you can breathe a sigh of relief.
5. Prepare for the next one
If a financial emergency has one silver lining, it’s that you learn a bunch of valuable lessons along the way. We all face more than our fair share of these during our lives, so now it’s a matter of using what you’ve learned to better prepare should another come your way.
If you don’t already have one, then an emergency fund is a must. A good rule of thumb is to save at least enough to cover a few months expenses such as groceries and utility bills, if not a little more to start covering the emergency itself.
The more you save? The better a position you'll be in, and the less stress you'll face the next time you're faced with a financial emergency.
It also pays to follow some common-sense advice so your finances are in a healthy position to deal with any future challenges. Pay off your debts as quickly as you can and live your life debt free, save spare cash, and follow your budget. That way when a financial emergency arises, it won't know what hit it, and not the other way around!
Facing a financial emergency? Keep cool, calm, and collected
No matter how meticulous your budget, organised your finances, or deep your savings, a financial emergency can throw hurdles at you that may feel insurmountable.
With the steps we've outlined today you'll be able to keep a level head, devise a financial plan of attack, and face your financial emergencies head-on.