Sixty percent of Americans can’t come up with enough money to pay for a $500 emergency. It’s not that they don’t the have access to information on how to improve their situation, because everywhere you turn, there is a bombardment of how-to financial advice on constructing an emergency fund – “Find extra cash by paying off your credit card every month, automate a savings or investing plan, set aside 6 months salary, make a budget, use your credit card, don’t use your credit card…” Standard financial advice is fine for people who are aren’t serial spenders, and take a more sophisticated view of their finances. For the spender however, discussions on maxing out IRAs, increasing ROI, inflation, TFSAs, and any other financial product, term, or strategy is simply falling on deaf ears. Yet, it is those that are obsessed with consumption that may need an emergency fund the most.
Did You Know?
Unpaid medical bills are the leading cause of bankruptcy in the United States.
Financial Emergencies and Tips to Deal With Them
At some point in their lives, everyone needs access to enough money to pay for unexpected expenses or full blown emergencies. An emergency to one person may be a minor inconvenience to another. You may be so financially strained on a low income, that the toaster breaking causes stress.
Standard advice for an emergency fund is to have 6 months salary saved to pay for living expenses… yeah right. Most people don’t have $1,000 saved, let alone 6 months salary, and presenting them with what looks like an unachievable goal, may stop them from saving at all. The main point should be that any amount of savings is better than no savings at all. Next in importance is to save regularly, even if all you can afford is $1 a day. To help people in financial crisis, we have included a list of resources available to them, so they don’t resort to payday loans or high interest credit cards.
Emergencies may include:
- Any major expense that shows up once a year if you don’t have the money to pay it – income tax, property tax, insurance
- Unexpected expensive home repairs – a new roof, furnace, plumbing, electrical, foundation
- Uninsured medical or dental expense
- Natural disaster that insurance may not cover
- Income tax bill
- Major auto repair
- Job loss
- Long term illness
- Death in the family
- unexpected travel expenses
- Victim of crime / cybercrime
Emergencies arrive with very little warning, and it is often their suddenness that makes them so stressful. Without warning or any time to prepare (and in some cases prevent), you may find yourself in an unbearably stressful situation. A job loss, medical crisis, natural disaster, or running out of savings, may put you in situation where you can’t pay bills or buy food for your family. Below is a list of organizations you can go for help…
- Open a no-fee savings account (that does not have a debit card linked to it) and start saving even a small amount regularly. If you are the type that will ‘raid’ this account for unnecessary purchases, open it at another bank with no online access.
- Use some of these Everyday Money Savings Tips to help build your savings.
- Cash needs to be accessible, so don’t tie it up in investments that can’t be immediately liquidated without losing value.
- When faced with a large bill from an emergency, arrange for a payment plan – most places will accommodate you, rather than have the bill not paid at all.
- Try and negotiate a smaller $ amount on unexpected bills.
- Insurance can be used as an emergency fund against things such as job loss from disability? Some insurance companies offer emergency cash to get you through.
- As a last resort, a line of credit or credit card can be used for emergencies. Unless the emergency is dire, a credit card should only be used if you have the funds coming to pay it off promptly.
- Have a Financial Emergency Plan ready – even a few notes, copies of your most important documents gathered in one secure place, and emergency assistance contact numbers, is better than no plan at all.
- What not to do in a financial emergency – Never use payday loans or credit cards for daily exp if you have no way of paying it back.
- Emergency Financial First Aid Kit – © Operation HOPE, Inc.