What counts as a real financial emergency and what if you can’t cover the expense?
Here are a couple instances we say qualify:
Job instability or loss
Job loss happens, and when it does, you need to continue paying your living expenses. Make sure you can bridge the income gap with your emergency savings fund to keep you financially (and emotionally) healthier until you can get back on your feet.
Medical and dental emergencies can happen at any time. When they do your medical insurance may not cover all the expenses. You may have a high deductible health plan or it could be your pet’s emergency. Be sure to consider these costs in your emergency fund savings target.
When our car starts every morning we sometimes take it for granted. If it is our main mode of transport it is vital to get it back on the road. Maintenance and repairs are often costly, so be sure to consider these expenses when building your savings.
Major household repairs
Although you may have some home insurance, you can’t control a water heater leak that floods your basement, a broken appliance, or if your central air conditioning decides to break during a heatwave; this warrants dipping into your emergency savings.
The most unfortunate and unexpected expense comes when you experience the loss of a loved one. If you have to travel unexpectedly, your emergency fund can prevent you from using credit and give you one less worry.
Read more about additional Qualifying Life Events to consider when building your emergency saving fund.
What if you don’t have an emergency fund, how will you cover the expense? Start building one.
Evaluate your budget and trim where you can to find the money to help cover the expense. Consider a reduction in spending until you have a fair amount in your savings. Start setting aside money in an easily accessible savings account, consistently. Even the smallest amount adds up.
If this is not possible right now, depending on the immediate need you can consider:
- Negotiate an affordable payment plan with the hospital or auto repair group.
- Shop around for better prices, get at least three quotes from three different qualified professionals.
- Think about selling things you have of value that you are no longer using.
- Look for quick ways to earn cash through freelancing, dog walking or babysitting.
- Make bigger cuts by saying goodbye to cable, your expensive cell plan or reduce dining out.
- Do whatever you can to avoid using your credit card or taking out a loan.
- If you do, make sure to prioritize paying down the high-interest debt first and use some of your available money to build your emergency savings fund so it does not happen again.
Remember, having an emergency savings fund protects you from ever having to borrow against your retirement savings or any of your other assets, which could be detrimental to your overall financial health and could cost you more than the financial emergency. Know the implications before considering this type of loan and consult a financial professional.
Financial wellness is about finding a healthy balance between living for today while preparing financially for tomorrow. Using these tips, we encourage you to build an emergency savings fund so you feel more prepared today for when life happens tomorrow.