Monday, 6 May 2019
Unexpected financial emergencies happen all the time: Your car's transmission goes out, your refrigerator stops cooling, you need surgery but have a high deductible health plan.
According to a recent survey, more than half of Americans don't have the cash or savings on hand to cover a $1,000 emergency.
If you haven't experienced an unexpected financial emergency, chances are you will eventually. And if you don't have available savings to cover these expenses, you may have to rely on credit cards or personal loans, which means that with interest, you could end up paying even more than the original expense.
Rather than panicking when the unexpected occurs, you can take a few simple steps to prepare yourself for a potential financial emergency. With a little discipline and planning, you can build your own safety net to prepare for the unexpected and avoid going into debt for the inevitable financial emergency. Start with these steps:
If you have credit card debt, the interest you're incurring each month could be keeping you from reaching other financial goals. And if your credit card balances are near your credit limit, those cards wouldn't help you in the case of a financial emergency. So the first step is to pay down your credit card balances.
Start with the smallest balance and pay as much as possible on it every month, making the minimum payment on any other cards. Look for ways to cut expenses to help you pay it off quicker. Once you've paid off one card, start on the next one. Not only will you have available balance if you need it in case of an emergency, but you'll also be spending less money each month in debt payments and may eventually raise your credit score.
Even if you're working to pay off debt, it's possible to build some savings, little by little. Many experts recommend saving 10 percent or more of your monthly income, but start with whatever's possible, such as $25, $50 or $100 per week. If you set up an automatic deposit to a savings account of $25 each week, you'll have $100 set aside after a month, and $1,000 after just ten months. Commit to maintaining that habit and avoid using the savings for anything but true emergencies. As your fund grows, you may want to switch to a money market account, which may earn more interest. As you continue saving, you'll likely develop a sense of satisfaction and relief from financial anxiety, knowing you have a growing safety net, if you need it.
Even if you have an emergency fund in the works, you might consider keeping one credit card set aside for potential emergencies. If you have a credit card account already open and available to use, you won't have to worry about where to find the money you need when you're faced with an unexpected expense.
Take a few simple steps, and you'll no longer have to worry about a potential financial emergency. You'll be prepared with your own personal financial safety net.
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