How well do you think you can cope when you do not have an emergency fund? That depends on how resourceful you are. While it is not the end of the world, not having a reserve fund when you need it the most is one of the biggest mistakes that you can make. Sometimes, you can make all the right choices about your finances. But if you are not prepared for a sudden trip to the emergency room or an unexpected job loss, you might end up destroying your financial future completely.
A financial emergency is no joke. This is something that can really cripple you. Not only that, it can effectively destroy relationships. The tension that arises from the emergency and the lack of finances to pay for it can cause stress between couples.
What makes this scenario very frustrating is the fact that you can avoid it. You do not have to immerse yourself in this situation because saving up for an emergency fund can help you avoid this problem. All it takes is some planning and a couple of sacrifices. You need to boost your savings each month so you can save up enough emergency money.
According to GoBankingRates.com, a lot of Americans are in need of immediate emergency fund goals. They conducted a survey that revealed how 6 out of 10 Americans do not have $1,000 in their savings. If you are one of them, you need to start planning how you can give that a boost. Do not be complacent because this is a small amount compared to what you could be spending in the event of an unexpected emergency. If you want to have financial security, building your reserve fund should be one of your priorities.
What can you do to get the finances when you are in the midst of an emergency
In the event that you are faced with an unexpected expense and you have yet to save up for an emergency – what do you think you should do?
Some people will be in a state of panic because they would not know what to do. Well, it is not really the end of the world – like we mentioned earlier. You do have a couple of options before you in case you do not have the funds to pay for an emergency.
According to a survey done by Bankrate, your income range usually dictates how you will find the financial resources in the event of an emergency. Those who earn $75,000 or more on a yearly basis are more inclined to have the savings that can help them pay for an emergency. Those who earn less are less likely to use their savings. In fact, they are more inclined to use credit to pay for an emergency expense.
In case you are in the midst of an unexpected event and you do not have the emergency fund to pay it off, here are a couple of options that can help you financially survive.
Use your jewelry.
If you want to pay for the emergency expense while avoiding debt, one of the things that you can do is to look at what you own. Start with your jewelry. Maybe there are a couple of earrings, rings, necklaces or bracelets that you can sell. If the money is needed immediately, you can pawn it off. Gold appreciates in value over time. You might be able to profit from your jewelry – especially if you do not need it anymore and you do not mind losing them.
Sell your car.
Another thing that you can do is to sell your car. Unless of course, your emergency would require a car to make mobility easier. You cannot get rid of your car then. But if you can then you may want to live without a car for now. This can be a great substitute for your emergency fund. Sell your car and use the public transportation until you can get your finances back in order.
Lower spending immediately.
It is also very important to lower your spending. In case the emergency did not compromise your ability to earn income, then you may want to lower your expenses drastically. This will help you get the money to pay for the emergency expense without having to borrow money.
Get a cash advance from work.
In case the options mentioned above are not enough, you can always ask your employer for a cash advance. This is not really borrowing money because you are just getting your salary in advance. Of course, this may not be a lot. But the good thing is, you may not be required to pay interest on this.
Borrow from a family or friend.
Here is where you might have to borrow some money. You can approach a family member or a friend for financial help during an emergency. Since you know them, it is possible that they will not charge you with interest – or if they will, it will be very small. In case you find one who can trust you with a loan, make sure you will show them a payment plan that you will commit to. Be careful not to break the trust because an unpaid debt is a quick way to ruin relationships.
As much as a credit card can be used to pay for an unexpected expense, we do not advise that you use it in lieu of an emergency fund. Unless it is the last resort of course. But if you can avoid it, you may want to do so because that will save you a lot of money on interest. If there is no other way, you can always try to apply for a credit card consolidation loan to help lower the interest.
Tips to build your reserve fund fast
According to the data from MarketWatch.com, one survey revealed that 22% of their respondents went through a major emergency medical expense. This cost them $2,000 to $3,000. Imagine putting that amount on your credit card? It will put you in debt for a long time. This is especially true if you are already living from paycheck to paycheck. Chances are, you will only pay the minimum requirement each month. This will make you pay a lot of interest in the long run.
Here is a video from Forbes that discussed how much your lack of emergency fund can really cost you.
Because of this, it is very important that you save up for an emergency fund. Here are a couple of tips to help you do this.
- Declutter and sell the excess. Time to go through all your belongings and see if you can dispose of them. It is a great way to organize your home and make some extra money. Any profit from a garage or yard sale should go towards your emergency fund.
- Spend less. You should also make a commitment to spend less. If you can, live frugally for a couple of months. Put towards your emergency cash fund anything that you can save. Make sure you put it where you cannot spend it. As you see it grow, it might be tempting to dip into it.
- Get a side gig. Finally, you need to get a side job to boost your income. When you earn more, make sure you do not go through a lifestyle upgrade. Live as usual and do not add to your expenses. Then put away all the extra money towards your emergency savings.
Common questions about an emergency fund
Question: Why is an emergency fund important?
Answer: This fund will help secure your finances. In case something goes wrong, you have this money to fall back on. This is a great way to avoid debt too. If your income is compromised or you suddenly end up with a huge medical bill, this fund can help you survive.
Question: Where should I keep an emergency fund?
Answer: Ideally, you want to put your emergency fund where you cannot easily access it. You do not want to battle the temptation to spend it all the time. However, you want to make sure that you can get it when you need it. Maybe you can set up a savings account that will require you to go to the bank to make a withdrawal. This account should not allow ATM withdrawals or check.
Question: How much should I save for my emergency fund?
Answer: This depends on your lifestyle needs. The rule is to save between 3 to 9 months worth of your essential expenses.
Question: How should an emergency fund be used?
Answer: This will depend on what you think you will need in the future. Will it only be used for medical emergencies? Or will it be strictly for life or death situations? The rules are entirely up to you.
Question: Who needs an emergency fund?
Answer: Everyone needs an emergency fund – especially those who have people or children relying on them. If you want to be financially secure, this is the best way to do it.