Without an emergency fund you can rely on, unexpected expenses can be a huge burden to deal with. According to a recent Triple AAA survey, 1 in 3 U.S drivers can’t pay for an unexpected auto repair – which usually ranges from $500 to $600. Some people handle unexpected expenses by taking out a Payday Loan or Installment Loan – while these options are a great idea, here are some additional ways to manage in these sticky situations.
Create an Emergency Fund
Making sure an emergency fund is in place is essential for dealing with unexpected expenses. An emergency fund is simply some money saved for a rainy day (i.e. an emergency). The main difference between an emergency fund and a savings account is that it’s purely for unforeseen crises, whereas a savings account is usually for things that have been planned for. Having liquid resources at your disposal for emergencies can help you rest easy.
Ideally, the average person should have two to three months of expenses within their emergency fund. Yes, it may be difficult to set aside a substantial amount of money, but you will be glad it’s there when an emergency presents itself.
Dipping into other Budgets
If you don’t happen to have an emergency fund or a built-in category within your budget for ‘unexpected expenses’, if something unexpected arises, you will most likely have to dip into the leisure category. For example, if you have been saving up for a planned vacation or purchase, it would make sense to reroute some of your savings from that category towards your unexpected expense. Obviously, this means that you will need to rebuild your savings for that goal later, but it’s a matter of prioritizing issues as they occur.
Cut Back on Spending
If you already have a budget in place, see if you can cut back on your usual expenses and set aside a ‘cushion’ for an emergency. You’d be surprised what you can afford to set aside simply by preparing your own food instead of buying lunch and/or canceling unnecessary monthly subscriptions. Even if you can only cut a small percentage of your budget, it’s better than nothing. Over time, even small amounts of money that are put aside will add up – making it likely that you’ll have enough funds to deal with the situation when and if an emergency happens.
Ask Family and Friends
While many people would rather not ask their family and friends for money – sometimes it’s the only viable option. Mixing loved ones and loans has the potential to backfire and could possibly damage relationships. It’s important to carefully consider who and how you plan to borrow from, especially when it involves relatives. Needless to say, asking a distant uncle that you talk to once a year is probably not the best choice.
Even in this chaotic world, there are various ways to prepare for the unexpected. No one is perfect, and we are all learning as we go. Start stashing away small amounts of money each month to prepare for the next speed bump. Hopefully, these suggestions will help you going forward – don’t forget to check out our 50/20/30 Rule – Simple Budgeting Hacks blog for more financial tips.