Preparing for Emergencies

If you suddenly found yourself without a job, or if a medical emergency left you with unexpected expenses, would you be able to weather the financial storm? Surveys estimate that nearly half of Americans live from paycheck to paycheck. They have no reserve if a financial emergency strikes.

Prepare for financial emergencies

Most families have some kind of emergency plan in case of natural disasters like tornadoes, earthquakes, fire, or floods because they know their family’s well-being depends on it. Your family’s financial well-being may very well depend on how prepared you are to handle a financial emergency. Even if your budget is limited, you can start preparing today. Here are some guidelines.

Savings accounts to handle financial emergencies

Experts recommend that you have at least three months’ budget in a savings account in case you lose your income. That way, you can pay the necessary monthly expenditures (mortgage or rent, utilities, phone, groceries, etc.) while you look for a new job. Saving this much money may not always be something you can do right away, but if you make a concerted effort to save a certain amount out of each check you get – even if it’s as little as $10 per check – and put it in a “hands-off” interest bearing account, your reserve funds can add up faster than you’d think. And if you have the money automatically deducted from your paycheck or checking account, you won’t even know it’s not there to spend.

The two most important things to make this type of savings plan work are: 1) deduct money from every single check you receive, with no exceptions; and 2) make a rule that you cannot use the money in the account for anything but a financial emergency.

Credit cards for a financial emergency

If you have one credit card (hopefully with a generous credit line), try to refrain from using it. Put it away and use it only if you have an unexpected large expense and not enough cash on hand to cover it. Of course, it’s better to use money from your savings to handle unforeseen expenditures such as car repairs, uninsured dental work, or having to purchase new appliances, but using a credit card may be better than not being able to pay your monthly bills.

Negotiate with your creditors in an emergency

If you do find yourself compromised with a large expense or a job loss and can’t keep up your monthly payments, don’t ignore your creditors. Call each one and let them know your situation to see if there’s anything they’ll do to ease the burden while you’re getting back on track. Often credit card companies and other lenders will help you get through a temporary, difficult period.