According to a recent survey by Willis Towers Watson, an astounding number of Americans live from paycheck to paycheck. Not only that, a report by the First National Bank of Omaha discovered that 53 percent of Americans have no emergency fund.
It may be slightly reassuring to learn there are others in the same situation as you but that will not help solve your financial problems. If you want to enjoy financial freedom and recover from your financial crisis, there are things you can do.
In this article we will share some tips to help you get through the financial emergency you’re currently experiencing. We’ll also share some tips to help you better prepare in the future.
5 Tips for Getting Through an Unexpected Financial Emergency
There are several life-emergencies that can catch you unaware. The first and most common is job loss. Getting married, believe it or not, can also lead to a financial emergency when partners combine their debt. Not surprisingly, divorce also features in the list of reasons to find yourself facing a financial crisis.
Whatever the reason, the following tips will help you weather the storm and find your way out the other side.
1. Assess Your Situation and Create a Budget
The important thing to remember, as soon as you’re aware you’re facing a financial crisis, is to remain calm. It’s only natural to feel slightly panicked, but you’ll be unable to evaluate your situation if you don’t have a calm head on your shoulders.
When a financial emergency strikes, there will be a million and one things swirling around in your head. How are you going to pay the rent and pay for your groceries? Will the utility companies cut you off if you can’t pay the bill? What if you need medical treatment?
If you can calm down and put your thoughts in order, you’ll be able to make the right choices and avoid increasing your hardship.
First, you need to determine the root cause of your current situation. Is it a case of expenditure you can’t keep up with? Are you experiencing a sudden loss of income? Perhaps it’s a natural disaster or pandemic that is the root cause of the problem.
A unique plan of action is required, depending on the root cause. If you don’t address the root of the problem, the crisis is likely to resurface in the future.
A good place to start is to make a list of your income and expenditure. That way you’ll know where your money is going. It’ll also help you prioritize your expenses as there will be bills you must pay before others and some expenditure you can forgo, at least for a while. The most crucial bills are those relating to shelter and food. Some of your other expenses, such as cable TV or internet service, might cause some inconvenience if you don’t pay them. However, such minor inconveniences are better to handle than having to find an alternative place to live.
Creating a budget is essential if you want to gain control of your spending. It’ll also help you meet your financial goals.
3. Cut Your Spending
Once you’ve determined which expenses are important, you can then look at ways of cutting back or cutting expenses out of your budget all together. Here are some things you might want to consider ditching:
- Expensive cell phone plan.
- Premium movie channels.
- Gym membership.
- Streaming services.
- Eating out.
4. Negotiate With Your Lenders
If it’s credit card, medical, or mortgage payments you’re having problems with, you must contact your lender as soon as possible because they may be able to help. Lenders are not always the ogres we consider them to be and can be very understanding if you’re upfront and honest about your situation.
It’s also in their best interest to help you make your payments, as it’s better for them to get some money than none at all. As long as you contact them early enough they might be willing to lower interest rates or delay payment requirements. Your mortgage lender might be able to restructure your borrowing.
During times of hardship, utility companies often offer special programs to help you keep the lights on.
5. Find Creative Ways to Make Extra Money
Having an emergency fund to fall back on is the best solution if you ever find yourself facing a financial crisis. However, some people may not have an emergency fund readily available. So what can you do when your savings have run dry?
There are countless ways you can make some extra money, many of which require no financial investment. Here are a few side hustles you might want to try:
- Sell some of your unwanted possessions online with the help of eBay or Craigslist.
- Become an online tutor.
- Sell your services via Fiverr.
- Rent out a room in your home.
- Start a blog.
- Paid online surveys.
- Become a mystery shopper.
- Use an online saving app.
- Start an e-commerce store.
- Test websites.
- Take part in research studies.
One last option you can consider, but only as a last resort, is to dip into any retirement savings you’ve got. It might be a smarter thing to do than borrowing money through a loan or credit card.
6. Take Advantage of Available Assistance
There are several government sponsored programs available to help people overcome unexpected financial hardship. There are unemployment benefits, for example, if you’ve lost your job. Worker’s compensation might be available if you were injured at work. Social Security Disability or Medicaid might also offer assistance.
Something that’s affecting people around the world is the coronavirus crisis. In the US, there are several things you can do if you need financial aid because of this crisis.
- Unemployment benefits: you may be entitled if you’re quarantined or have been furloughed.
- Coronavirus relief package: gives many American workers paid leave if they need to take time off because of the outbreak.
- Student loan payment waiver: a payment waiver of at least 60 days has been granted to many people but you have to request it from your loan servicer.
- Tax filing deadline has been moved: tax returns and payments now have to be made before the new deadline of July 15.
- Mortgage payments: these could be delayed if the COVID-19 crisis has left you short of money.
- Utilities: some providers are offering to stop cutting people off for nonpayment.
How to be Better Prepared in the Future
The tips above are to help you through your current crisis. But what can you do to prevent it happening in the future? Take the right steps and you’ll minimize the impact of something similar occuring.
Start With an Emergency Fund
Aim to have enough set aside to cover your usual expenses for at least a couple of months. With an emergency fund to fall back on you won’t be forced to make difficult choices about your basic needs. Set yourself a savings goal, but make sure it’s achievable or you’ll soon lose motivation.
Different forms of insurance are available if you want a safety net to cover unexpected expenses. The expenses might relate to your home, health, cars, or another aspect of your life.
Plan for Routine Costs
It helps if you know your routine costs will always be covered. Determine what these costs are by creating a budget. Include regular months bills and don’t forget about the more irregular expenses, such as replacing the oil in your car, kids school clothes, and your annual taxes.
Know Where You Can Make Savings
It’s always good to know where you can make some savings if you need to reduce your expenses in an emergency. Look at your budget and think about which items could be cut with the result of an immediate saving.
An exercise such as this also highlights areas of waste that you could rectify straight away. Plug the leaks in your budget and you’ll be able to divert more money toward your emergency fund.
Every Cloud Has a Silver Lining
You might feel the weight of your financial crisis for some time but once the burden is lifted, you’ll come out the other side a more financially aware person. The lessons you learn will stand you in good stead for the future and you’ll keep better control of your finances.