Emergency expenses can come out of nowhere. Your furnace could break down in the middle of the night, forcing you to call up a professional repair-person first thing in the morning to fix it. Your kitchen sink could clog, pushing you to hire a plumber to clear it as soon as possible. Your car could get a flat tire. Your roof could spring a leak. Your dental filling could fall out when you’re eating dinner.
All of these are expenses that you can’t predict and can’t ignore. The only thing that you can do about these types of expenses is to prepare for them before they even arise. How?
Sign Up for an ESA at Work
Does your workplace offer emergency savings accounts (ESAs)? An emergency savings account is an employer-sponsored emergency fund. By signing up for the benefit, you’ll agree to deduct a portion of your paychecks and direct those funds into a savings account. Your employer may offer to match your contributions to help boost those funds in a short amount of time.
An ESA is meant to be your financial safety net in an emergency. When an emergency expense crops up, you can withdraw the necessary funds from the account and pay off the expense right away.
Build Your Own Emergency Fund
Your workplace might not offer emergency savings accounts as benefits to their employees. In that case, you can build an emergency fund without your employer’s help.
An emergency fund is a collection of personal savings reserved for urgent, unplanned expenses. The general rule of thumb is to try to save between three to six months’ worth of expenses inside this fund. This amount should help you manage surprise expenses like home repairs, car repairs and dental appointments immediately.
Having three to six months’ worth of expenses saved up in your emergency fund can also help you weather periods of financial instability. For instance, if you were ever in a situation where you unexpectedly lost your job, you could use the savings in your emergency fund to cover your essentials like your rent, groceries and utility bills. It can temporarily supplement your income until you regain some financial stability.
Keep Your Credit Card Balance Low
Your credit card can be an excellent safety net in an emergency — of course, as long as the balance on it is far from the credit limit. If the balance is too close to the set credit limit, you might not be able to put a surprise expense onto the card without causing further financial trouble. You could end up giving yourself a balance that is too difficult to pay down through your monthly billing cycle. Or worse, you could end up maxing out your credit card entirely.
So, you should do your best to keep your credit card balance as far from the limit as possible. A low balance will give you plenty of available credit to rely on in emergencies. You’ll be able to add a surprise expense to it without suffering any unintentional consequences.
What If You’re Not Prepared?
An emergency expense has fallen into your lap and you’re not prepared. You don’t have an emergency savings account through your workplace. You don’t have a personal emergency fund. The balances on your credit cards aren’t that low.
What options are left? This is when to get an emergency loan to borrow funds for your urgent expense. As long as you meet the qualifications for the emergency loan, you can fill out your application in a matter of minutes. If you get approved for the loan, you can use those funds to cover the expense in a short amount of time. Once that’s over and done with, you can focus on repayments through a straightforward billing cycle.
Emergency loans should be used as last resorts. They shouldn’t be the first solutions you turn to in a crisis.
Be prepared for the unexpected! Set up these safety nets so that you can cover emergency expenses whenever they arise.