When a financial emergency happens, emotions can take over and stress levels can skyrocket. Coping with an unexpected financial burden is not easy, but you can do things to take control of the situation. Our list of essential steps to take in a financial crisis can help you navigate your short-term needs and plan for long-term recovery.
1. Evaluate Your Needs
Emergencies such as job loss, sudden illness, accidents, home repairs and death in the family are often unexpected and have unique financial consequences. It’s normal to feel anxious and overwhelmed during an emergency. Evaluating your immediate needs can be a productive way to focus your thoughts.
First, evaluate the financial impact of the event by writing down all estimated costs. Include short-term expenses (paid for upfront) and long-term expenses (paid for over time).
For example, if you have been injured in a car accident, you’ll need to cover upfront medical costs like medications, co-pays. You’ll also need to plan ahead for larger bills like ambulance, emergency room fees, and car repair or replacement costs. Additionally, suppose the emergency will cause you to take time off work and result in lost income. In that case, you need to calculate how much money you are losing and how that will impact your ability to pay for necessities like rent, food, transportation, insurance, and existing debt.
2. Prioritize Expenses
Once you have an idea of what the emergency itself will cost, put it in the context of your finances. Begin by prioritizing your expenses. Things like rent, utilities, groceries, transportation, and medication are likely to be at the top, while things like health and beauty extras, entertainment, subscriptions are not.
3. Cut Non-Essential Costs
Consider cutting costs by removing non-essential things from the bottom of your priority list. Look for non-essential items that hide in essential categories. For example, when you grocery shop, it’s easy to spend more than you need to on extras like alcohol, treats, or premium products. Consider replacing expensive items with cheaper alternatives or temporarily forgoing your typical splurges.
4. Use Your Resources
Do you have money in a savings account? Do you have an emergency fund? If you have savings or a dedicated emergency fund, use that money first. However, if you do not have a safety net, you’ll need to find alternative ways to cover costs.
Short-term expenses can go on a credit card. A personal loan could help cover larger bills. If you have a retirement fund, you might decide to dip into those savings to avoid going into debt.
If you own your home or other valuable assets, you may be able to leverage those. Home equity loans may be a good option for homeowners. Lastly, selling extra vehicles or other valuables can help you access additional cash when you need it.
5. Explore Assistance Options
If you are struggling after an emergency, it’s OK to explore assistance options. Some people are fortunate enough to have family members who can help. There are also public assistance options and non-profit organizations that provide resources for people in need.
6. Negotiate with Creditors
Instead of falling behind on debt payments during a financial crisis, contact your creditors to negotiate accommodations. They may be able to lower your monthly payments, reduce your interest rate or waive existing late fees.
While none of this is guaranteed, it is in the creditor’s best interest to help you continue making regular payments on your debt rather than allow your account to go past due or end up in collections.
7. Make Extra Money
Recovering from a financial emergency takes time, but finding a way to make extra money can help you speed up the process. Taking on a side hustle can help pay for bills or debts related to the emergency. Even if it’s only a few hours a week, over a year, it could make a big difference.
Prepare for Future Emergencies
If an expensive emergency has ever blindsided you, then you know first hand the value of having savings on hand. If you haven’t, then take our word for it and plan ahead, so you don’t have to learn the hard way.
Saving a few thousand dollars in an emergency fund can give you the cushion you need to get through the unexpected.