68% of Americans worry they couldn’t cover a month’s worth of expenses if they suddenly lost their job. 49% of Americans say they have no or fewer savings than one year ago.
Only 43% say they could cover a $1,000 emergency they faced from savings.
If you know you fit into one of these categories, it might be time to get your financial house in order and prepare for a potential financial emergency.
It’s easy to tell someone to save more money and be prepared. Yet, if you want to get your finances under control so you are ready for a financial emergency, it takes some planning and financial focus.
Read on to learn how you can get your financial self in better shape, so you’re prepared if you face a financial emergency.
Emergencies are an unfortunate reality of life. They happen to everyone at some point in life. How they’re handled and whether the person is prepared for them is what establishes the crisis level of the emergency.
An emergency can come from natural disasters, like bad storms, hurricanes, or tornados. An emergency could mean a fire in your home or an unexpected car repair. Your furnace could quit, or the washing machine could stop working.
Personal emergencies are common, too. This might include a medical emergency or a job loss.
There’s no real way to anticipate the type of emergency that might befall you. So, it’s essential to do some basic things to prepare you when life throws you a curveball.
Then, if the emergency is a $1,000 variety or a much bigger one, you can have the resources and organization to handle it.
Knowing how many people are unprepared for financial hardship should motivate you to take stock of your own financial health. The reality is that you can’t eliminate the possibility of an emergency.
So, you need to be ready when one comes your way. One of the first things you should do is to work to get your financial house in order.
The statistics show that a large majority of people facing an emergency don’t have the financial resources to weather it. So, the more quickly you can have a firm handle on your personal finances; the better prepared you can get yourself.
It’s surprising the number of people who get to the end of a week or a month and don’t really know where all their money has gone.
You can’t get your financial house in order without knowing where all your money goes.
Start your financial quest by sitting down and creating a monthly budget for yourself.
Add up all the money that comes in for the month. Then list all your bills and expenses. Be sure to be realistic about where you spend money. Include in the budget filling your car with gas and buying groceries.
Once you know the money that’s required, you can look at what money you have left for discretionary spending.
One goal you should have in your plan is to pay off debt. It’s hard to find ways to build your savings when you have significant amounts of debt, typically with high-interest rates attached to them.
List all your credit card debt and plan to get it paid off. You will never achieve that goal if you continue to use the cards and only make the minimum monthly payments.
You might do the math and consider whether taking out a loan to consolidate these debts makes sense. You may save some on interest if you only pay interest to one lender instead of multiple lenders.
Again, this only works if you stop using the credit cards you hope to pay off.
Another essential part of getting your financial house in order is your cash flow. You don’t want to rely on credit for an expense or an emergency.
Likewise, an important part of building a savings nest egg is having some cash available for savings.
Part of your budget can look at when you have income coming in during the month and when it makes sense to put part of your income into savings.
Many emergencies don’t have to be considered emergencies at all if you have the financial resources to address them. It’s the reason you need an emergency fund.
Then you have the emergency money needed to handle it when the furnace or your car needs a repair or a new washing machine. Those things are still one of life’s annoyances, but when you have the financial resources, they are no longer emergencies.
More specific details on how to build your emergency fund will be provided shortly.
You would be like many people if you don’t have a good system for managing all the paperwork that comes your way each month through your bills.
If you face a big financial crisis or someone else must take over for you, it’s smart to have all your important information in one place.
This can mean you have file folders in a safe or put all the documents in a binder so everything is together in one place.
If someone has to step in to handle matters on your behalf or you need identification, it can be smart to have copies of all identification for all family members.
This might include:
This information needs to be kept in a secure location.
Next, your financial emergency kit should include all your important legal and financial documents.
Any contracts related to your home or bills should be part of this folder. Keep copies of statements for your mortgage so someone else would know how to make a mortgage payment if needed.
Keep copies of your insurance policies and your tax documents. You should also keep some documentation of where all your income comes from.
Another essential part of your financial emergency should include medical and insurance information.
Medical information should include:
This should be included here if you have the power of attorney paperwork or durable power of attorney paperwork.
Any insurance policies, including life, medical, and homeowners insurance, should also be included.
It’s also wise to include an ‘in case of emergency’ section with all the important contact information included.
Include contact information for:
If you have a place of worship, include that contact information, too.
Part of protecting yourself from an emergency is to evaluate all of your insurance coverage.
It can be financially devastating if you face a disaster and don’t have the right insurance coverage.
For example, if your home has a fire, not having the right insurance coverage could mean huge expenses out of pocket.
You must have renters insurance to protect your belongings and yourself if you’re a renter.
A surprising number of people know very little about their credit score or what their credit report says about them.
The better your credit score, the less you pay when borrowing money. A good credit score means you pay lower interest rates for mortgages, auto loans, personal loans, and credit cards.
The less you pay in interest means you have more to put into an emergency fund and build your savings.
Having an emergency fund is critical to weather an emergency when it comes your way. Without any savings, you aren’t prepared for unexpected expenses.
You can never know what an emergency expense will cost you. Most experts suggest you have at least three to six months of savings to cover your expenses.
If you have no current savings, that amount can feel daunting. But the sooner you get your own finances under control, the more quickly you can start putting money into savings.
Experts suggest you pay yourself first. Get the money into savings before you ever touch your income. As you pay down debts, take the money from those expenses and start to pay it into savings.
It’s important to think like a saver versus a spender. Establish a savings mindset to build your emergency fund, and don’t let yourself spend money on discretionary items.
Always ask yourself before you spend money if it’s something you must spend money for or if it’s something you want and can wait to have.
What should you do if you find yourself needing emergency cash before you can build your emergency fund?
One option is to get a personal loan to cover your expenses. It’s important to know that you can cover the payments for the loan. It’s also important to only borrow what you absolutely need.
Shop for the best loan options if borrowing is necessary to handle your emergency.
A financial emergency can feel like your life is in upheaval, especially if you aren’t prepared for it. Getting your financial house in order and building an emergency fund can help you be ready for those unexpected emergencies life can throw your way.
If you need to borrow money, we can help with a personal loan. Check out our loan options to help you with your financial emergency.