Do you have the funds to pay for uninsured medical costs, to survive losing your job, or get your spouse out of a financial mess? If you’re like many Americans, you don’t have the means to cover a financial emergency. In 2015, a survey of American households found that 47 percent of participants would struggle to cover as little as $400 in an emergency. Here are some tips on how to prepare for a financial emergency and get the money you need.
- Start Accumulating Cash
Financial experts recommend keeping at least three months worth of cash on hand to pay essential expenses. Three months is the minimum, but it’s great if you can save more. Remember, this money is for an emergency. That means you may need to quickly and easily access the funds. Start a savings account, open a special checking account, or lock the money in a residential safe.
The thought of building a nest egg is sometimes overwhelming. But you can start small and grow slowly. Decide how much you want to save per month, put that amount aside, and never touch it unless a true financial emergency arises. And pay yourself first before paying any other expense. That way you won’t have a reason or an excuse for not putting aside your savings.
- Short-Term Borrowing
Borrowing money to pay an emergency expense isn’t ideal. That’s one more debt you’ll have to repay. But borrowing is sometimes your best or only option. You can ask a family member or friend for a short-term loan, but that could possibly cause hard feelings. They might refuse your request or you might have a difficult time repaying the loan. Considering that, a bank, credit union, or loan advance online is preferable.
- Pick Up Extra Cash
A side hustle is an activity that earns quick extra cash. It’s something you can do easily that doesn’t interfere with your regular job. For example, driving for Uber or Lyft means you get paid for providing transportation to people who need rides. You set your own schedule and work only when you want to. Another way to raise extra cash is to sell items you no longer want or need. Most cities have used bookstores, consignment shops, or pawn shops that buy used items.
- Have a Line of Open Credit
Relying on credit isn’t always a good idea. After all, when you’re paying back debt you’re decreasing your available income. But relying on credit for a short time can sometimes get you out of a financial jam. Keep at least one credit card to use in the case of an emergency.
It’s important to pay your credit card bill on time. Keeping the balance low is advised as well. If possible, pay off your credit card bill in full each month. A credit card used for emergency expenses should always have available credit. And avoid behavior that will get your credit card closed or your credit limit reduced.
Improving Your Financial Situation
If finances are a struggle, then perhaps it’s time to look at your spending habits. Expenses such as rent or mortgage, insurance, food, and utilities are essential. Those are the things that you must pay each month. But what about everything else? Are there expenses you can eliminate or reduce? Take a look at your monthly expenses and find ways to reduce your spending.