How to Prepare for a Financial Emergency
February 5, 2021 by Daniel Azzoli
It’s normal to think you’re immune to one of life’s many unexpected emergencies, until the day you’re calmly driving along the highway when you suddenly blow a tire and need to pay for a tow truck, a new tire, and the cost of labor. Or maybe you take a tumble off your bike onto some particularly unforgiving concrete and need to head to the emergency room to tend to a broken arm. Whatever the reason, emergencies have a way of rearing their ugly heads when you least expect it, and they don’t usually come cheap.
So, whether you’re well-versed in the potential consequences of a financial emergency or you’ve been fortunate enough to avoid them so far, it’s important to be ready to handle whatever may come your way. Saving enough money to help you handle emergencies may take some time, but if you take the right measures to increase your financial emergency preparedness, you can position yourself to better handle these types of situations in the future.
Today, we’re going to go over some general tips to help you prepare for a financial emergency and save up for a rainy day, and then we’ll go over some common financial emergency examples and look at ways to prevent them and prepare for them.
4 Tips to Prepare for a Financial Emergency
While it’s hard to predict when and if an emergency will strike, the best you can do is to prepare for the eventuality. These tips are general things you can do to get ready, but also things you can do in advance that may help soften the blow when emergency expenses do crop up.
1. Start an Emergency Fund
The most important tool in your financial emergency kit is going to be your emergency fund. It might seem like an obvious habit to keep up with, but whenever you have a bit of money left over after paying all of your necessary expenses, it’s important to put aside some of that money in a savings account specifically designated to help you handle emergency expenses. Make sure you have easy access to this money, and try to build it up until you have around six months’ worth of expenses saved. This isn’t going to happen overnight, but as long as you stay consistent and diligent, you can put yourself in a position to get this total to where you need it to be.
2. Keep Up with Positive Credit History-Related Habits
While the hope is that your emergency fund will be able to help you handle your financial emergency, it can take a long time to build up. So, if you run into some emergency expenses and you don’t have an emergency fund, or at least not one that can cover everything you need it to, you may need to look elsewhere for emergency financial help. One option you may have at your disposal is an online loan. These can come in the form of (but are not limited to):
But how do you get approved for these? Depending on the financial institution you’re working with, the requirements can vary. In a lot of cases though, your credit score may have a big role to play. Because of this, it’s important to keep up with healthy financial habits that may have an impact on your credit score. These can include things like:
- Making on-time payments
- Making sure you’re not carrying too much debt at once
- Not requesting a large number of credit applications in a short period of time
A lot goes into making up your credit score, so make sure you research healthy credit habits, check your score often, and avoid behavior that could litter your credit history with negative marks.
3. Pay Off Your Debt
If you do have any outstanding debt, make sure you have a plan to pay it off. While it may sometimes be helpful to take on debt, when you’re debt-free, you don’t have to worry about balancing regular debt payments with your other expenses. These extra payments can make dealing with a financial emergency harder than it would be otherwise.
There are different ways to pay off debt that may be more effective for some than others. Maybe you want to focus on your high-interest debt first, or maybe you want to tackle your smallest debt accounts for some quick wins. Do your research and try to find a system that works best for you.
4. Try to Lower Your Fixed Expenses
Depending on your income, you may need to find some creative ways to make some extra room in your budget for your emergency fund contributions, or to help you pay off debt. It may also mean that if you do run into a financial emergency and your emergency fund can’t cover all the expenses, by having lowered your fixed expenses, you may have a bit of extra money lying around that can help you close the financial gap.
Here are some tips on how to lower your monthly expenses.
4 Common Financial Emergency Examples
Now that we’ve gone over some general tips to help prepare you for a financial emergency, let’s take a look at some financial emergency examples that may be a little more likely to come up in your everyday life, and how to handle them.
1. Emergency Auto Expenses
Anyone who owns a car knows how expensive the upkeep is. Gas, insurance, and car loans are expensive enough to deal with without having to add emergency expenses on top of that. So, what can you do to prevent them?
Complete Basic Car Maintenance at Home
The thought of doing your own car maintenance can be scary for someone who has never done it before. But give yourself some credit! If you put the effort in, there’s a number of small tasks that can be well within your ability. This can be things like:
- Changing oil
- Changing the battery
- Replacing headlights or taillights
- Swapping filters
Do some research into the task itself, and also look into how to do these things for your specific car model. On top of handling basic car maintenance, make sure to take care of your car in general. Change the oil when it needs changing, inflate your tires and replace them when they get old, and bring it in for scheduled maintenance checkups. These things can keep your car running smoothly and help to avoid potential financial emergencies that may pop up because of neglect.
2. Emergency Medical Expenses
The idea of paying for health insurance may seem pointless until the day comes where you have to shell out for a trip to the emergency room out of pocket. These trips aren’t cheap, so look into getting insurance if you don’t have it.
While this might seem obvious, make sure you take advantage of the health benefits that your workplace provides. And if you’re a student, look into whether your school provides any sort of student health plan.
Otherwise, try to leverage your family doctor as much as you can. Things like unexpected rashes, mild but consistent pain, or certain other conditions may be dealt with by your family doctor and could save you a trip to the ER. You may also be able to save some money by going to an urgent care clinic instead of the emergency room, depending on your medical situation, of course.
3. Emergency Pet Expenses
Anyone with a pet will know how expensive they can be, and if you find yourself in a situation where you have to pay for some sort of emergency procedure, you better be prepared for the cost.
The first thing you can do to soften the blow is to get pet insurance. While it’ll add to your monthly expenses, it’ll be well worth the cost if you run into a financial emergency surrounding your furry friend. Depending on the provider, you may even be able to get things like regular checkups covered.
Another thing you can do is to look for affordable emergency financial help for people on a budget. Visit the Humane Society’s website and take a look at the resources they’ve provided to help you get affordable emergency care for your pet.
4. Emergency Dental Expenses
Emergency dental surgery doesn’t come cheap. The simplest thing you can do to try to avoid these is to make sure you and the rest of your family is brushing and flossing regularly, but that can only account for so much.
If there are any nearby dental schools, you may be able to get discounted or even free services like cleanings from qualified students who are supervised by instructors. You can also look into:
- Dental Lifeline, who provides affordable support to vulnerable adults, like the elderly
- America’s ToothFairy for relatively inexpensive options for your kids
- The American Dental Association’s page for children’s dental care, which also has a tool that finds discounted care in your area
Prepare Yourself for a Financial Emergency
No one wants to be in a situation where they have to break the bank to handle a financial emergency, but the truth is, it happens. The best thing you can do is to take the necessary steps to prepare yourself and do what you can to avoid these scenarios. To do this, you’ll need to do the research and do your best to put yourself in a good position to weather any storm that comes your way. Overall, do your best to make smart financial choices, keep up with good habits, and save your money for a rainy day!