One of the realities of life is that sometimes unexpected financial emergencies can strike. Indeed, you never know when a natural disaster, job loss or some other catastrophe will strike. When you do run into financial difficulties, the way you react can make a big impact on how you resolve the situation, and whether or not the result is financial ruin.
Photo by BLW Photography via Flickr
If you are faced with a financial emergency, here are a few things to keep in mind as you prepare to handle the situation:
It can be difficult to stop and consider your situation. However, before you make a decision, you need to know where you are at. First of all, look at the situation.
Your first impulse might be to make a fast move, pulling all of your money out of your emergency fund, or immediately trying to stop all of your spending. You might be better served, though, by stepping back and considering the problem. Determine whether or not you might be able to set up a payment plan, and figure out what sources of income and financial help you might have available to you. You might not want to ask friends and family for help, but it might be necessary in some cases.
Understand your position, and recognize the assets you have access to, as well as the possibilities you have of making the situation more manageable.
In some cases, not all the planning in the world allows you to pay all of your bills when they come due. As a result, it is vital that you prioritize your bills. Figure out what your most important priorities are. if you want to remain in your home, then your top priority is making sure the mortgage is paid. If you need to keep your car, you need to ensure that you have enough money to make the loan payments. Utilities, groceries and other necessities should be ranked as well, although you can usually find assistance programs to help you with utilities, and you can find community pantries and food banks to help you with food, if you decide that’s necessary.
Realize that some bills just aren’t as important as others. Your credit card issuers might be calling and asking for payment, but if you are more concerned about keeping your house, paying the unsecured credit cards just isn’t going to be practical. You do have rights, and you can get creditors to stop calling you about payments you just can’t make, due to financial emergency. The important thing is to prioritize your bills so that the most important items are covered.
As soon as you know you are in trouble, contact your creditors. See if you can work out a new payment plan. You might be able to work something out with your creditors, in terms of a new plan, forbearance, deferral or modification. Realize, though, that in some situations interest will still accrue on your debts, even if you aren’t making payments right now.
Contacting your creditors can help you salvage some of your credit rating, as well as reduce the number of phone calls and payment due notices you receive. Be realistic about your ability to repay the loan right now, and work with your creditors on a payment plan. Many creditors are willing to work with those who show an interest in repaying their debts, instead of just turning to bankruptcy as a way out.
One of the best ways to shore up your finances during an emergency is to have income diversity. As soon as your emergency hits, look for ways that you can earn more money. Consider side hustles, home business ideas and part-time work. You will likely need more income, from different sources, if you are going to weather the emergency.
Great article Miranda. Having financial emergencies are part of life. I really appreciate your point about assessing the situation BEFORE you do anything.
Many people act first and think later.
One more point I would like to add is to really think about what constitutes an emergency before you raid your emergency funds. You worked hard to build them, make sure they are used for a true emergency, not a routine bill or an unexpected want.
@Marie – Great point about defining what’s an emergency.
I like that you included how to prioritize your bills in this article. Financial emergencies require us to ask ourselves what is most important to us. Prioritizing our bills is a great way to ensure that the things that are important get funded first. Well written!
As they say, when you are faced with this dilemma, creative thinking is the secret. There are still numerous ways on dealing with financial emergencies and all you just need is to dig deeper for solutions. Furthermore, once you surpassed the financial catastrophe, think about saving this time. Save at least ten percent of your take home pay and put in an emergency fund.
Im excited that I am doing each and every one of these so far in 2012! One totally new thing I’m doing in January is tracking everything I spend, I always use a certain amount when it comes to food and gas, but I have no idea if I’m meeting that target every month. I read The Richest Man In Babylon last year as well as a few other books, and this month I am reading The Millionaire Next Door and I Will Teach You to be Rich!
I’d like to add is that in addition to setting goals you need to allocate the time to implement them. When set my goal to become debt-free, I decided to treat it like a part-time job or a hobby, devoting as much as 10-20 hours a week to this goal. I set up an account on mint.com to combine all of my accounts in one place and reviewed it every day. I set up my budget in the Debt Buster spreadsheet (free on my blog), and monitored that daily as well. And I monitored my checking account and online bill-pay to make sure I didn’t bounce any checks, or pay anything late.