Emergency expense– Help! How do I pay for it?
Emergency Expense– Help! How Do I Pay For It?
How would you pay for an emergency expense, if you needed a car or home repair? Could you afford $1000 expense? Less than 1/2 of all Americans don’t have enough money to cover a small emergency around $1000.
Life happens. Things come up. Savings gets spent.
What are your options if you are faced with an unexpected emergency?
19% of people use a credit card to pay adding to their current debt while paying high interest rates.
13% slow their spending on other expenses and accelerate the repayment of the emergency debt. It is a good structure but one that is hard to stick to.
12% borrow from friends and family. If you loan 3 or 4 friends $1000 next thing you know, you’re broke. Keep in mind that borrowing can ruin relationships if not communicated well.
5% take out a personal loan from the bank. Low interest loans are a good option and the bank will make sure you pay them off.
I was surprised 12% either default on the debt or they just work with the creditor and pay it over a period of time. So, when you consider 61% of Americans don’t really have enough money to cover that, it goes back to the basic problem of the most important thing in financial planning is to start with the basics. You gotta have an immediate money fund, a bucket. You got a bucket for that. You got a short term or a medium range bucket of money and then you got a long range bucket.
Automation. Setup a monthly or weekly withdrawal from your checking into you savings. After a while you will learn to live on the smaller amount of money and you will see your savings grow. Their are several apps available to help with saving. Find a system that works for you and stick to it!
I like people to get three to six months worth of income in cash. Now we know 61% don’t even have $1000. So, realistically we get back to save a little bit out of every paycheck. Not that you’re piling up a lot of money, but you’re creating a habit that you will continue to do when you’re making more money. If you have an expense like that that pops up and you have to do one of these alternatives, you might want to work overtime. You might want to get a second job. You might want to do something to try to influence your income to retire that debt sooner. Either way, you go back to the basics. You build up a short term account. Get a month’s worth of income in reserve. When you get that done, pat yourself on the back, go get a Village Pie, eat every bit of it and then work on getting another month’s income.
Back to the Basics
Can you save three months worth of your income? Put your mind to it and it can be done. Give up something that you are in the habit of doing is difficult but take a different route to work, so you don’t pass the coffee shop and cook for friends at home instead of meeting out for Taco Tuesdays. Put the savings into your account and watch it build.
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