Updated: August 27, 2020
Unexpected circumstances is life’s reality and sometimes, it hits us hard when we least expect it.
Financial emergencies come in many forms – it can be as minor as our mobile phone getting lost, or our car needing immediate repairs.
Or it can be as major as our home being devastated by a natural disaster, running into a huge accident, or losing your job.
Whether small or big – these incidents impact our life and if we’re not prepared on how to properly handle these situations, then we could end up in a financial mess.
When faced with a financial emergency, it helps to keep these tips in mind.
Step Back and Assess The Situation
Calm down, breath deeply, and clear your head. Sit down and assess the situation as objectively as you can. Start by asking yourself the question:
Is the financial impact of the situation short-term, medium or long-term?:
- Short-term: losing your mobile phone, car breaks down, etc.
- Medium-term: loss of work, medical emergencies, home repairs, etc.
- Long-term: illnesses, breadwinner’s loss of capacity to earn, etc.
By knowing how the crisis will affect you and your family, you’re already one step ahead in coping with the situation.
Evaluate Your Available Funds
This is now the part when you’ll breathe a sigh of relief and smile because you have an emergency fund.
Usually, situations with short-term impact can easily be covered by three-months worth of your “SWAN fund”. (SWAN means Sleep Well At Night)
Meanwhile, medium-term financial emergencies will probably deplete more than half, if not all, of your “rainy-day savings” – so you should still be okay, theoretically.
However, your emergency fund will probably be not enough for financial emergencies with long-term impact. Nevertheless, you should still be okay for a few months, but be prepared to make some lifestyle changes.
Make A Financial Plan
For situations with short and medium-term impact – the only plan you need to make is how to rebuild your emergency fund. And since you’ve done it before, I assume it won’t be a problem anymore.
But for the third situation, or in cases when your emergency fund won’t be able to cover the costs you’ll incur, then here are some things you should do:
Restructure your monthly budget
Revisit your spending allocation and make sure there’s room for the new expenses that are coming. This is especially true for health issues that require maintenance medicines.
Cut unnecessary expenses
Go back to basics. Realize that you only need shelter and food on the table to actually live. So have your cable TV subscription, gym membership, and other “luxuries” cut.
Call your creditors
If you have loans or credit card debts, tell your creditors about your situation as soon as possible. Try to work out an alternative payment plan, get modified terms or even payment deferral. You’ll be surprised how most of them will appreciate the gesture and allow your request.
Find ways to make money
Sell your stuff to acquire some funds immediately, then look for new income sources. Open your eyes to opportunities as there are many of them around. Borrow money from family and friends only as a last resort, again… only as a last resort.
Nobody wants to be in a financial emergency, but it does happen no matter how much you try to avoid them.
Know that the best thing you can do for yourself and your family when such circumstances strike is to be smart and proactive about it.
And always remember that just like a bad, stormy weather – it too, shall pass.
- Emergency Fund Calculator: How Much Money Do You Really Need To Save?
- Getting Fired: Things To Do When You Lose Your Job
How do you properly borrow money from family and friends? I’ll write about that soon – subscribe to Ready To Be Rich and don’t miss that article.
Photo credit: kayaker1204