In the United States, more than half of all people do not have an extra $500-$1,000 to pay for an emergency expense. It may make one feel a little better knowing that it’s a common problem and they’re not alone, but that still doesn’t answer the question: when something pops up, how do you pay for it? Here are a few things to think about while scrambling to cover an unexpected need.
Cutting Back and Securing Loans
The first thing many of us do in an emergency is use funds we had allotted elsewhere. You can instantly create another few hundred dollars per month by ditching your cable package and never eating out. There’s also the time-honored tip to make your own coffee each morning – there’s another $20 or more per week.
Look at your daily and monthly spending habits and see what’s going in favor of this emergency. Almost a quarter of people surveyed say that this is what they do when they need fast cash.
A lot of people borrow as well, particularly from family members who are willing to help them out. But just as many people rely on credit cards to bail them out.
Then there are loans. If you can get fast approval to serve your needs in time, it seems like an attractive option. Still, you are creating a debt that must be paid quickly, as well as dealing with potentially high interest rates.
People with assets, like a home they have a mortgage for, will pay down debt they created in an emergency with a home equity line of credit. All in all, getting a loan can trigger a chain of events that one should definitely consider before taking that loan out.
Getting Money for an Emergency
The best resource for emergency spending is you and your preparedness, so plan for the next one. Even those with low incomes can find just a little room to put something aside. You can start this emergency fund by selling things you don’t need anymore.
From there, add any change you get back from purchases to the emergency fund. Dedicate $20 (or less!) from each paycheck to your new emergency fund. It may be difficult to not spend it when every penny counts, but the security you feel just from having it may alleviate a lot of anxieties you have about your finances.
It’s also key to know exactly when (and when not) to spend your emergency savings. When an expense pops up, ask yourself if it’s really urgent – can it wait a few weeks? Months, even? Next, ask yourself if it’s an emergency. Could you have seen this coming? Christmas gifts, for an example, are not an emergency. Losing your job is.
It’s easy to feel as though you have it a little more difficult than those around you, but this might be less true than you think. We all have emergencies, and the majority of us have no way to pay for them. But with a closer look at your options, and careful planning for the next emergency, you’ll be able to let go of that anxiety and treat emergencies quickly and painlessly.