Are You and Your Finances
Prepared for an Emergency?
Financial emergencies come in all shapes and sizes. Some expected, while others are unexpected. They are, by definition, circumstances that you haven’t planned for or obligations that could be difficult to pay. This could be anything from losing your job, to your car breaking down, or an unexpected medical emergency. Regardless of the situation, any unplanned change in your financial situation can be incredibly stressful.
The financial safety net that an emergency fund provides can help keep you afloat during a time of need without having to rely on credit cards or taking out high-interest loans. You may have heard that you should have at least three months of expenses saved in a separate account in the event of an emergency. While there is no true rule to this, having somewhere between three and six months of expenses saved up can certainly come in handy.
This checklist can be helpful in simplifying the process of building and maintaining your emergency fund.
- Determine how much you should have saved (three months, six months, etc.)
- Analyze your budget and make necessary cuts
- Build your fund slowly and use automatic transfers on paydays to ease the process
- Stay balanced with your new budget, set small obtainable goals and reward yourself along the way leading up to your ultimate goal
- Don’t empty your wallet to fill your emergency fund
Now you may be thinking you can just put it on your credit card or take out a new loan. Both will help you in the short term, however it’s only a temporary fix. Opening a new credit card or loan and making the minimum monthly payment could result in you paying way more in interest rates and fees. If you're going to continue to use the credit card, you're just compounding the problem. If you already have multiple credit cards and loans open, this may not be a viable option for you and your finances.
Carefully evaluate your expenses and use this checklist to develop an emergency fund plan and execution. Having these plans in place can help you feel a little more prepared for that unexpected financial emergency. More importantly, it can also help keep you and your long-term financial goals on track.