There are a lot of uncertainties in life and going through a financial emergency is just one of them. When you start looking at it, there are a lot of different types of emergencies you might go through when it comes to your money. A lot of things can happen in life and they can happen without any warning. It might come one after the other or if you are out of luck, all at the same time.
You can usually classify these types of emergencies based on how severe they are. Some are pretty minor much like a broken window at home, a busted light in the shed, or even some fences at the backyard that suddenly needs fixing. Then there are some which might require more of your time and money to get through.
This can be a car repair, a hole in the roof of your house because of a storm, and even a kitchen fire that needs your immediate attention. Going through a financial emergency can also be so severe that it changes the course of your life. You might have plans and long-term goals you want to reach but life can take you in for a wild turn.
These can come in the form of job loss which was at a record level during the recession where CNN estimated job loss in 2008 to be at 2.6 million . A lot of people suddenly lost their jobs and found the value of their homes sinking. A medical emergency can also put a big dent on your finances where you will not only shell out big money for hospitalization, you could also lose some income because you cannot report to work. There are just some of the types of emergencies you could be facing. If you are going through a rough time, there are a couple of things you can do to help you get through it.
Do not panic
A knee jerk reaction during a financial emergency will usually lead to bigger problems for you. You could be deciding while your emotions are running high or your pride and ego are on the line. At the end of the day, you might be making more of a mess rather than trying to fix the problem. This can land you in deeper financial problems.
One example is when you are trying to fix that shed in your garden to make sure all the items you put inside are safe. In your hurry to get it done, you go ahead and hire a professional to make sure that the job is done right and as quick as possible. However, if you only stopped and looked at the repairs that needed to be done, you might figure out a way to DIY it yourself without having to spend a lot on professionals and save money.
Understand the type of financial emergency you were in
As mentioned earlier, there are a few types of money emergencies especially if you look at the severity of each. There are some which you can solve with a few dollars in your pocket while some would see you dip into your emergency fund. Once this happens, you know that you are going through something really serious.
Look at your options
Once you understand the type of financial emergency you are in, you will have a better chance of looking for ways to address it. If it is a small amount which you can cover with your income at the end of the month, you can explore using your credit card. However, you just need to make sure that you pay it off in full once the bill comes in.
There is a reason why some people create reserve funds with an emergency fund separate from a rainy day fund. This is to make sure that the small emergencies do not eat up into the emergency fund value. If you have this, then use the rainy day fund for small needs and leave the emergency fund for all the heavy lifting.
Cut down on expenses
Once you go through a financial emergency, one of the very first items in your budget to change are your expenses. There is a good chance that you need to recuperate some of the immediate expenses you had to make. You could have paid for an operation, a car repair, or even paying off your card as you charged that airline ticket to visit a sick relative.
As you go through your household budget, you need to organize it in a way where you shave off a few dollars from your expenses. This will give you the chance to start saving and putting back money into various funds and accounts you used. It can be for credit card payments, paying back family and friends if you had to borrow some, or even putting it back into your emergency fund.
Replenish your emergency fund
If that emergency forced you to use your emergency fund, your next step is to make sure that your fund is back up to the level it was before, if not more. The reason behind this is that you never know when you will need it again. This should be on top of your agenda if you want to recover from an unexpected emergency.
Try to trace back your steps and analyze how long it took you to save up your emergency fund. It might have taken you two years to build up your emergency fund and it is a good idea to bring it up quicker than that. The sooner you save, the better it will be for you in case you go through another emergency where you need the funds.
Learn from the incident
You will go through a number of financial challenges in life where some can stop you in your tracks. Others can be a little inconvenient but not too much that you have to make life-altering decisions. In all of these, the best thing you can do after you have recovered from them is to walk away with a lesson in mind.
The challenges you go through will always leave a lesson in your life and it is up to you to decipher it. If you miss it, there is a good chance that you go through the same situation with the same result. You will quickly find yourself in the same situation as before if not worse. However, if you are able to pick up the lesson it leaves behind, you might be able to avoid the same situations entirely.
If you had to dip into your mortgage and take out an equity loan because you needed to get the roof fixed, it can work though it is best not to add more years of payment on the house. This can happen if you do not have any emergency fund to speak of. If you learned your lesson and started to build your reserve fund, emergency repairs can be underway without having to dip into your mortgage or even your retirement fund.
It is tough going through a financial emergency but you need to keep your head up and go through it with learning in mind. This will help you manage your finances better and hopefully avoid the same emergencies in the future.