We all want to know how to survive a financial emergency. Life is full of unexpected surprises. No matter how hard you plan for the future, something will always happen to mess up with your life. This is especially true with your finances.
It is not like the universe is out to get you. Not really. There are just too many things happening that are outside your control. The government, the economy, and even the decisions that your boss makes with regards to the company you work for. These can affect your finances significantly. If you are not prepared for these, you can find yourself drowning in a financial crisis that is hard to get out of.
Being in the midst of a financial emergency can be a scary situation. You are already stressed out because of the events happening around you. If your financial security is also shaken, it can significantly increase the anxiety that you should be feeling. In fact, a lot of Americans probably feel the same way right now.
According to reports, a majority of Americans do not have a rainy day fund. That means if something unexpected comes up, it is harder for them to survive a financial emergency. This can be a medical expense, an accident, or a job loss. If you are cruelly placed in this situation, how can you cope?
6 steps to help get out of a financial crisis
While it is difficult, it is not an impossible situation to overcome. There are 6 important steps that you need to follow if you want to get out of the financial crisis that you are currently in.
Step 1: Analyze the situation
Start by getting to know the problem. What exactly are your dealing with right now and how is it affecting your life and finances? Your first instinct is probably to panic. Well, that will really not help at all. If anything, it will only succeed in draining your energy and it will take you no closer to the solution. What you need to do is to step back, take a deep breath, and analyze your situation. This is the best way for you to see the magnitude of your financial crisis. Sometimes, your brain is just making things worse than it seems. You need to get the general picture so you can identify what your options are in getting out of this financial emergency. Take note that it is not enough to look at the problem. You need to identify the root cause of that problem.
Step 2: Rank your expenses and cut back
Once you have identified the problem and the root cause, you should look at your expenses next. You have to rank them by priority. That way, you will know what you need to cut back on. Obviously, you need to free up money in order to survive a financial emergency. To do that, you need to lower your spending. It might be hard to do if most of the household spending categories are steadily increasing year over year. But if you want to have that extra money to help you get out of a tight financial situation, then you have no choice. Live frugally and concentrate on what is important to you. If necessary, live on basic necessities for a month or two. That way, you can lower your expenses significantly.
Step 3: Talk to your lenders
If you have some debt, you are probably struggling to pay them off right now. That is understandable because you are in a bad financial position. However, that does not reduce the responsibility that you have towards your debt. No matter how dire the situation is, you are still held accountable for your debts. But that does not mean you cannot get help. You simply have to get in touch with your lender or creditor and negotiate with them. If your finances are tight, ask them if they can lower your interest rate or monthly payment. This will give you breathing space in your budget without compromising your debt payments.
Step 4: Earn extra money
This is the most proactive way that you can survive a financial emergency. While you can cut back on spending, there is only so much that you can do. But if you want to increase your extra money, you need to grow your income too. By cutting back on your expenses and increasing your income, you will give your budget more room for improvement. The extra money can come from some items in your house that you no longer need. Declutter your life and sell what you do not need. If worse comes to worse, downsize your house so you are forced to get rid of come of your possessions. The extra money that you will get should be put towards the improvement of your financial position. You can also get a second job or work longer hours.
Step 5: Look for freebies and tap into benefits
This will actually depend on what caused your financial emergency. If it was caused by a job loss, you can opt to look for unemployment benefits from the government. In case you got sick, look for benefits that can help you get financial aid. Your company might have something to offer you. Usually, there is a form of assistance that you can tap into. Any amount will really help you get out of a financial emergency. It will also lessen the stress and burden that you are feeling. If you are working and paying your taxes, you are entitled to get help from the government.
Step 6: Make sure to be prepared for financial emergencies
Finally, you have to start preparing for the next financial emergency. It can happen soon or in a few months. It does not matter. You need to prepare for it so you do not have to feel so helpless when an unexpected event happens. Going through a difficult time is never easy but it will really help if you have prepared for it beforehand. While it is hard to predict the future, having your emergency fund ready will make you feel more stable and secure.
Tips to prepare for an unexpected expense
Without a doubt, it is hard to survive a financial emergency. But it can be easier as long as you come prepared. The question is, what are the specific ways that you can prepare yourself? Here are some tips that you can look into.
- Save up for an emergency fund. This is your first line of defense against unexpected events. The importance of an emergency fund never gets old. It does not matter if your job is okay or not. Make sure you have this on hand. You need to have a separate fund that you can specifically use when you are in a dire financial situation. It has to be at least 6 months of your current monthly budget.
- Get insurance. While 85% agree that a life insurance is needed, only 59% have invested in this type of insurance. A life insurance is not exactly for you – but for the people who will be devastated when they lose you. Of course, you have the option to get an insurance that you can convert into your retirement money when you reach the right age. Consider your options. The important thing is to get insurance. The other types of insurance that you need to have includes those for your house, car, and your health.
- Prepare for natural disasters. This is getting more important as time goes on. Hurricanes are getting stronger and earthquakes are getting more violent. The forces of nature can be quite destructive. Invest in an emergency kit and secure the important documents. Come up with a plan for your loved ones for worse case scenarios. Sometimes, ignorance can make things worse and harder to get back up.
Follow these and you should be able to survive a financial emergency – in case it strikes once more.