Living paycheck to paycheck means that things are tight when an emergency occurs. However if an emergency has happened already: what do you do?
Here are tips for getting through an unexpected financial emergency:
- Evaluate the Situation:
As soon as you realize a financial emergency has struck, take a moment to sit down and carefully evaluate your situation. Running around in a panic won’t solve anything, and it only adds stress. However, a little bit of panic is understandable—you probably have a million things running through your head, and remaining calm isn’t one of them. However, the ability to check your emotions and carefully evaluate your situation at this crucial point will ensure you make the right choices and avoid further hardship. Once you’ve calmed down, try to determine the root cause of this financial emergency. You will brainstorm solutions eventually, but first, you need to understand what caused this to happen. Typical reasons can include a sudden loss of income, mounting expenses you can’t keep up with, or a natural disaster. While each situation can lead to similar crises, your plan of attack needs to address the root of the problem, or else it’ll just be putting a Band-Aid on a wound that’s bound to open again in the future.
- Prioritize Expenses:
Not all expenses are created equal. Some bills need to be paid before others, and if you can’t afford to pay them all, you need to prioritize. The most important bills are the ones related to food and shelter. Letting your internet service lapse is inconvenient, but it’s easier to find a place with free Wi-Fi fi than it is to find a new place to live. Rent payments should take priority. Also, you probably won’t think as clearly or work as productively on an empty stomach. If you start skipping meals, you may be digging yourself deeper into your crisis.
Once you’ve established which bills are the most important, you can begin looking for expenses to cut back or cut out your budget altogether. This review won’t be a fun process, but the cutbacks will expedite your recovery.
- Take a Look at How Insurance Could Help:
You pay for insurance for a reason. So if you’re dealing with unexpected expenses, check to see if insurance can help you cover some cost. It might help to start by taking a look at what insurance you have. Then, you could check the fine print on all your policies to identify places you have coverage, helping you avoid unnecessary expenses.
- Get a Loan:
Loans may be a good option if you need cash right away. Make sure to do proper vetting and research before choosing the loan option. While borrowing money can provide quick access to cash, it can also come with high-interest rates and a new monthly payment. These extra payments will extend the timeline of your financial hardship, and if you borrow too much money, you may find yourself in a downward spiral from which it is nearly impossible to recover. My suggestion would be to stay away from high-interest, payday-type loans, which can start a vicious cycle that may be difficult to get out of and can increase financial worries.
- Start a Side Hustle:
Technology has become the great equalizer when it comes to starting a business and building wealth because of the ease in use and access to so many people. When you find yourself in a financial emergency, starting a side hustle is a great way to earn extra income and rebuild your emergency fund. This is a great option because not only will it allow you to make extra money to build your emergency fund, but it also can help you avoid financial emergencies altogether in the future. The best part of this option is that you will not owe anyone or be at the mercy of anyone, either.
- Ask for Help:
If all else fails, then it may be time to lean on your friends and family and ask for help. This may not be ideal for most, but when facing an emergency, it might be your best option. Borrowing from friends and family can put a strain on the relationship, so treat this help with respect and be sure to pay back what you owe as soon as possible.
- Planning for the Next Financial Emergency:
Once you make it through your current hardship, take steps to minimize the impact of similar events in the future. Start with an emergency fund. A good rule of thumb is to have enough set aside to make ends meet for a few months. That way, unexpected expenses won’t force you to make difficult choices about basic needs. Obviously, the more you have saved, the better off you’ll be, but don’t get discouraged if you can’t immediately reach your savings goals. Whatever you save up will buy you some time while you get things back on track. You might also want to consider insurance. Most forms of insurance are a safety net to cover unexpected expenses related to our cars, our homes, our health, and other aspects of our lives. Having a plan in place before a financial crisis strikes you will take a lot of weight off your shoulders.
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