Financial emergencies have become an all too familiar part of everyone’s life. For something that is supposed to be unexpected, this is something that we always talk about. We believe that this is something that will certainly happen – we just don’t know when. Experts keep on telling us that we need to be prepared for these instances because it is bound to happen sometime.
When you are not prepared for this emergency, it can easily lead to a lot of financial problems. It can quickly push your finances in the red and that can compromise your future. Next thing you know, you are trying to climb out of a difficult financial situation. This is a common scenario for a lot of people and it is an unnecessary problem because it can be avoided. One of the best ways to manage these money emergencies is to have a better understanding of why they happen in the first place.
3 common causes of financial emergencies
Much like any other emergency in life, it will be quite difficult to anticipate when money problems will occur. They sometimes come at you when you least expect it. They catch you off-guard and you end up rattled not knowing what to do. So instead of focusing on when it will happen, it is better to concentrate on something else – what would lead you into financial emergencies?
According to a survey, the top reasons why Americans use their emergency savings include household repairs, car expenses, medical emergencies, and job loss. Let us discuss them one by one.
This is a combination of household repairs and car expenses. Apparently, these two are the top causes of financial emergencies in the country. It is not surprising since we indulge in a lot of activities at home and we use our vehicles practically every day. We are bound to wear out things around the house and in our car. So we need to prepare for that time because we cannot last a long time with any of these broken. We need our car to get to work or bring the family to wherever they have to be. And anything that is broken inside the house has to be dealt with because it will affect how we function. Of course, our safety and security are also in the line if these remain broken.
According to a survey, most homeowners underestimate the cost needed to fix or update anything in their house. This is why it usually ends up as a financial emergency. The survey revealed that people would estimate that painting the interior of the house will only cost $734, but in reality, the average cost is $1,744. That is a huge discrepancy that can quickly lead you to rely on debt to finance the difference.
The thing about medical emergencies is the fact that you cannot avoid spending on it. When your health or that of your loved one is on the line, you will do anything to make sure that you can pay for this. And we all know this will not be a cheap expense. According to statistics, the average emergency room expense is $1,917 – and this was back in 2016. You can only imagine how much that has grown since then. This amount is something that Americans with employer-sponsored packages face. Imagine if you do not have this benefit? One trip can quickly pull your finances down. It can lead you to a lot of debt.
This type of emergency is stressful and it is not unlikely that it will lead you to make the wrong choices. You will be desperate to finance the medical expense that you will most likely rely on quick-fix options that will cost you a lot of money. These include credit cards or even payday loans. Racking up a huge debt through these options is usually a bad idea and can make your financial situation spiral out of control.
Being let go from work
Finally, a job loss is usually another reason for financial emergencies. If your primary source of income is compromised, that will pose a huge problem. Where will you get the money to survive? In this consumerist society, we need to have enough money to pay for basic necessities. You can only rely so much on government benefits. Obviously, the blow of being let go is hard but you have to get over that quickly to find a replacement. This is especially true if you have kids. You need to find another source of income because you need it to survive.
These three are the top reasons why Americans land in financial emergencies. While it can be a difficult time, it is not something that can necessarily end your world. You just have to be prepared for them. Knowing what can compromise your finances is the first step. Finding the solution, while it will still be challenging, will not be done with more clarity.
Why financial emergencies can be a good thing
Admittedly, it can be devastating to be in the midst of a financial emergency. But if you look beyond the problem, there are specific benefits that you can actually get from it. You can even go as far as to say that there are times when these emergencies can be good for you. After all, some stories of success started from a devastating moment in their life. It took one bad experience to fuel their need to turn their life around.
That is also something that you can do. It is all about perspective. Instead of letting financial emergencies destroy you, let it encourage you to be better. Here are three reasons why a financial emergency can be good for you.
Helps you learn valuable lessons
First of all, it can teach you things that you would never have learned during a time of abundance. Being in an emergency will teach you to be creative in how you spend your money. It teaches you resilience. It can even force you into learning how to manage your finances. All of these lessons can come with one emergency so make sure you learn as much as you can. The more you learn, the lower the chances that the next emergency will destroy you. Because you can be assured that there will be a next time.
Forces you to prepare ahead of time
Like we mentioned, being immersed in financial emergencies can teach you lessons about what to expect when it happens again. The reason may no longer be the same, it may be worse or not as grave as before, but your past experience should give you hints on how to survive. And that knowledge will help you prepare ahead of time. Whether it involves saving for an emergency fund or diversifying your income – this will help you survive the next financial issue.
Reminds you to value what you have
Being in a bad financial position will also be a good wake-up call for you. It will remind you of what you need to value. After all, when your finances are tight, you need to redefine your priorities. Having limited resources will force you to pick what you will spend on. This will be a good reminder of what you really need. Sometimes, you are already spending your money on things that are not really important. While it may seem justifiable, you might be wasting money that could have been going to funds that will make your future more secure and stable.
All of these benefits are hiding among the financial emergencies that you will encounter in your life. Make sure you pick up the lessons. It will keep these emergencies from destroying what you have built for yourself.