Tips for Dealing with a Financial Emergency

In today’s tight economic times, financial emergencies happen all too often. An unexpected illness, sudden unemployment, a car accident, a car repair and maintenance or an unforeseen home improvement can take you out of your financial track. However, when facing a financial crisis, panic doesn’t help. Instead, what could help you is keeping control of your money today so that you can use this money in the future. You need to set up an emergency fund and keep it separately from your family budget to make sure you will have enough money to anticipate unforeseen expenses.

The following are tips for dealing with a financial emergency.

1. Set up an emergency fund

An emergency fund can help you meet your financial obligations without having to liquidate your 401k or borrowing from you IRA account. In addition, by setting up an emergency fund you avoid overcharging your credit cards or withdrawing money from them.

Most financial gurus suggest that it is best to set 3 to 6 months worth of your income aside in an emergency fund to have a good amount of money to anticipate a financial emergency. In doing so, you can have a cushion if you lose your job or you face high medical bills as a result of a car accident. Yet, the level and adequacy of an emergency fund is also subject to your family situation, level of debt, extent of financial crisis and other factors.

2. Negotiate your debt

With credit card bills accumulating, medical bills soaring and any other type of personal loans piling up, your debt is getting higher. In case of a financial emergency, you have to contact your lenders immediately and ask for a negotiation on your debt. Try to negotiate on lower interest rates or change the terms of your loans in order to lower your monthly payments and save money on these expenses. If you don’t take timely action, you are most likely to make your situation even worse and be required to pay late fees and additional charges.

3. Cut back on unnecessary spending

Unnecessary spending can get you in deep trouble. When facing a financial crisis, you have to cut back on expenses that are not primary. For instance, having a coffee at Starbucks costs you $5 per day, $25 a week, $100 a month, $1,200 a year. Obviously, if you have a financial emergency, spending $1,200 a year at Starbucks or having premium channels subscription is rather a luxury than a necessity. Make sure to cut back on unnecessary spending by reviewing your bills and maintain this strategy until your financial situation improves and gets back to normal.

4. Prioritize your bills

Make sure to prioritize your bills and pay first those that are least likely to put you in great financial trouble. Establish the most important bills, including home and food expenses and make sure to pay these bills first, before anything else. If you don’t have a place to stay and every day food, you cannot get anywhere. Then, you can start working on your utility bills, loans, credit cards and so on.

5. Set up a budget

Setting up a budget can give you financial direction and can help you keep your finances on track. By reducing non-essential expenditure, you can have big savings every month. You can also shop around for better car insurance premiums to save money on your car insurance as well or shop for a better deal on your mortgage. Nevertheless, having a budget can provide you with an accurate picture of your financial situation and can help you save money to anticipate a financial emergency.

In conclusion, financial emergencies are hard to handle. You need to be prepared in advance and proactive. By seeing the unforeseen you can better anticipate it. Therefore, make sure to start saving today before any financial emergency occurs. Save money today to be able to live better tomorrow.