The holidays are just around the corner and people are already bracing themselves for the expected shopping but what will you do if you are faced with a big expense right before it? It is like facing an upset stomach right before a fancy dinner or your car breaking down before a planned trip. Encountering hiccups before a planned activity can really put you off course.
But facing a huge expense right before the holidays is considered by most people as more than just a hiccup. It poses a big problem that threatens the cheer and joy in their holiday celebration. The reason is that as they attend to this unexpected expense, they might not have enough with them to celebrate the holidays with gifts and food for family and friends. Some are even looking at using cash payments for the holiday season just to keep their finances in check.
Some might even have some travelling planned ahead for the holidays or putting a down payment on a house or a car they have been saving up for. But a financial emergency that would have them spending a big amount of money before Christmas can threaten those plans. This is because the amount that they have been saving would just go to that expense.
These expenses can vary from one need to another. It can be that before the holidays, you find out that you need to travel to a relative living far away because they are already dying. It can also be hearing from your lender that you have been underpaying on your house or car payments and that you account has entered default and you need to settle the amount right away. Even Time.com shared that about 4 in every 10 people expects to spend more during the holidays and this can be a problem with unexpected expenses.
Huge expense before year end
You can never predict the future and would be hard to say for sure if you will encounter any big expense item before the year ends. But if you do, here are some ways to make sure that you are able to manage and handle the situation to the best of your ability.
- Check the level of your reserve funds. Your number one go-to account when faced with big expenses that are not planned is to reach out to your reserve funds for help. It is their primary function in the first place and they should be able to cover most emergencies whether big or small. This is your safety net in cases of unexpected expenses and you do not have enough in the budget to cover that amount. You need to build this over time and set an amount that would be able to cover all possibilities from losing your job to replacing a busted pipe.
- Know what account to use for the emergency. Your reserve funds would mostly consist of two parts – your emergency fund and your rainy day fund. For some, these two are just the same but they actually have different function and for a good reason. Your emergency fund is meant to cover the big problems like a job loss or a serious medical condition. The rainy day fund covers the small league like small home or car repairs. So why do you need to separate the two when they both attend to unexpected big expenses? For one, if you keep only one account and you consistently experience small needs, you would have to keep on getting small amounts from the account and you might not realize that it is getting small. And when a big emergency comes in, you might not have enough anymore to cover the need.
- Assess available credit. This should not be your first strategy because credit is simply synonymous to debt. Take you credit card for example – whenever you are swiping or dipping that thing at the check-out counter, you are essentially taking a short term loan from your lender with the promise to pay for it at the end of the month. If not then you risk paying extra for fees and penalties as well as the interest rate on the amount. But you can use credit as long as you pay for it on the due date. But it is better that you exhaust all other options first before taking on debt to pay for that big expense. You need to check your available credit because Credit.com shared that compared last year, newer cards have lower available credits in them.
- Look at your household budget. See if you can free up some funds like those extra payment on your car loan or advance payments on the house you are making and allocate them to your big expense. Try to look at the minimum payments you can make on your financial obligations and channel the rest to meeting that big expense. The idea is to make minimum payments on time without sacrificing your payment record. Send the right amount to your existing payments and reallocate any excess you might have to make sure you get to pay for that huge expense. You can resume the extra payments once you have taken care of your immediate expense.
- Forego a scheduled purchase. You might have been saving up to buy that special edition toy or a downpayment on a car or bike. But when emergencies come and threaten your finances, you might want to consider using the money you have saved up first to help you meet those big expenses right before the holiday. These are not always wants and luxuries in life. It can be a plane ticket to see a sick and dying relative or an immediate payment for a soon-to-be foreclosed property. You can put off and re-schedule buying that item and attend to the more important expenses. You can start saving again once you attend to the more important big expense item before the year ends.
- Sell items to augment financial need. Instead of falling into debt or getting behind with their payments, some consumers would prefer to let go of some of their belongings in order to pay for their immediate expenses. They can choose to hold a garage or fire sale to liquidate assets and use them to cover their financial need. According to Statisticbrain.com, there is an average of over 160,000 garage sales every week in the country. But you need to be conscious on what you sell because you might end up selling what you need and having to buy a new one and spend more in the process. This is something you need to keep in mind when buying things because the more you buy things you do not have any need for – the time might come that you would have to sell stuff you need just to make ends meet.
- Split the cost with the next month’s budget. Some of the ways people manage unexpected costs that comes into their budget is to try and split the amount they need to address into two amounts. If there was an emergency and they needed to pay up $100 for a car repair – some would half it and pay $50 this month and another $50 on the next month. They get to lower down the amount they have to pay for the month and not get behind on other scheduled payments. But if you plan on doing this, you need to talk to the party you owe money to to check if it is ok to split the payments in two without any additional fees, charges or even penalties.
The holidays are just a few days ahead and your plans of buying gifts for your loved ones or going on a vacation can be at peril when you suddenly find yourself in the midst of an unexpected big expense. You just need to make sure that you get to exhaust all possible solutions and not panic.