By Budget, Money Management, Save Money79 Comments on The Ultimate Guide to Preparing for Unexpected Financial Emergencies

Step back and take a quick look at your current financial situation.  Are you prepared to handle something completely unexpected? According to a recent study done by Career Builder, 78% of U.S. workers live paycheck to paycheck.  The bottom line is that if a financial emergency does occur, most do not have the resources or have sufficiently planned for the crisis, if they are living paycheck to paycheck.  We will take a quick look at some of the most common emergencies and how you can better prepare for them if they come your way.  

1. Unexpected Job Loss

You think everything is going great and then out of nowhere you’re called into your supervisor’s office where they tell you the difficult news that you are being let go.  After the shock wears off, you then think of your family. How will the mortgage and everyday living expenses get paid?  

2. Sudden Move

The dream job that you just accepted happens to be across the country, or your company is relocating you to another office far from your current location.  Whatever the case, you are moving in a very short period of time. Moving is very expensive – from hiring movers to storing all of your belongings, and then finding new housing.  It will all add up quickly.

3. Unexpected Medical/Dental Emergency

Life is going great and all of sudden you wake up in pain and just know something is not right.  You call for an ambulance that rushes you to the emergency room, where doctors decide to run test after test.  You have health insurance, but it does not cover everything and you are still responsible for a deductible. Alternatively, you have just gone to the dentist for a routine check-up, and the dentist determines that you need a root canal.  You already know that your dental insurance will not cover the entire expense.   

4. Emergency Pet Care

In today’s society, pets are viewed more and more as just another family member. Veterinary care and medication costs continue to rise.  Many owners will spare no expense to care for their sick pet if it means saving their life. Even with pet insurance, many costs are not covered and the owner is responsible for paying for them out of pocket.

5. Unexpected Car Expenses

For many of us, driving is our main mode of transportation.  We need to drive in order to get to work, go to the grocery store, or just for everyday living.  Unfortunately, car expenses are one of those things that typically sneak up on us. Even doing routine maintenance on our vehicles does not stop these unanticipated repairs, which can be extremely costly. 

6. Unexpected Home Repairs

You hear that dreaded noise coming from the refrigerator or better yet, you go to change the thermostat in summer or winter and realize the temperature inside your home is not changing.  Whatever the situation, home repairs can suddenly come up for any homeowner and can be very expensive.  

7. Unexpected Travel

If you have a family member that lives in another state or even country, and they become ill or pass away, you may have to travel suddenly to care for them or attend a funeral.  Not only will it be a very emotional time, but it will be financially draining as well.

Ways to Prepare for Unexpected Financial Emergencies

We’ve listed several common emergencies that can cripple a person’s finances.  Even though unexpected financial emergencies will always arise, there are several ways a person can prepare to handle these situations when they occur.  

1. Create an Emergency Fund

An emergency fund is money set aside to specifically handle any unplanned emergencies that arise.  This money is only designated for emergencies and not to be used on anything else. Everyone’s emergency fund will vary based on lifestyle, monthly expenses, income, dependents, etc.  A general rule is to have 3 to 6 months worth of expenses set aside.   

Your emergency fund will take time to build so it is ok if you currently have no money saved.  Before you begin contributing to your emergency fund, set a timetable on how much you want to accumulate.  This can be a month, six months or even a year in the future, with an amount in mind of how much you would like to have in the account.  This account can be at a bank or credit union but it will need to be a separate account than your regular checking account.  Where can I find money to contribute to my emergency fund? 

  • Transfer money automatically from your paycheck.  You can treat this like just another tax that you have to pay, except this time you are paying yourself.  You can start with something as little as $10 per pay period, and if you are paid bi-weekly, you will have more than $250 saved by the end of the year.
  • Save all your change.  It really can add up.  If you pay for an item in cash and receive change in either bills or coins, save it and put it toward your emergency fund. 
  • Cut expenses.  If there are ways you can save a few dollars here or there, whether it is packing your lunch instead of going out or cutting back on that cup of coffee, do it.  Use coupons at the grocery store, but pretend that you paid full price and all the money you save, contribute to your emergency fund.  
  • Save your tax refund.  If you happen to get a partial refund at the end of the year, go ahead and save this toward your emergency fund.  This is a quick and easy way to save a decent amount of money fast.

2. Create a Budget and Follow it

A budget is fairly easy to create, but following it is another story.  Have you ever wondered where all the money in your bank account goes every month? Creating a budget lets you see where your money goes and gives insight on your spending habits.

  • Write down your total income for a month.  This income includes all the income in your household.  This income includes: all your net (take-home) pay from all your jobs, freelance pay, and any other ongoing steady sources of income. 
  • List ALL of your expenses.  Every single expense, no matter how small, is listed here.  If you have quarterly, semi-annual or annual bills, break them down to a monthly figure.  Examples of expenses include but are not limited to: home expenses, living expenses, transportation, entertainment, etc. 
  • Track your expenses.  Once you have listed all your expenses, hopefully expenses do not exceed income.  If they do, you will need to adjust your expenses to not exceed your income and get an accurate financial monthly picture.  

3. Maintain a good credit score

If you have completed Step 2: Create a Budget and Follow it, maintaining a good credit score will be much easier.  Why? Because you already know what debts you have and how much you are paying on them each month. As long as you pay your debts on time, you will maintain a good credit score and may even be able to better your score each month.  With a good credit score, you can get the best interest rates, more negotiating power, and a better chance at a loan approval in the case of an emergency.

Unexpected financial emergencies can hit us at any point in our lives.  It is up to us to adequately prepare to handle these crises when they happen.  Starting an emergency fund, creating a budget, and maintaining a good credit score is just the start in preparing for these emergencies.    

BudgetCredit ScoreEmergency FundFinanceHealth CareSave MoneyUnexpected Emergency

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