Introduction
A financial emergency can impact your budget, especially if you are living paycheck to paycheck. If you find yourself in a position where any additional expense threatens your budget, it can be extremely challenging to make progress. Visiting a doctor or hospital or repairing your car can turn into a major crisis that keeps you up at night and feeling stressed. According to a survey titled “How Americans Handle Unexpected Expenses” conducted by Bankrate, only 37% of Americans have enough savings to cover a $1,000 emergency. If you want to achieve true financial peace and stop worrying about your finances, you need to set up a system that helps you get out of this situation and makes it possible to cover your expenses without relying on credit cards or other costly loans.
How much money can you have without relying on credit?
A quick test to see how you manage is to look at how much money you can access without using a credit card next week. You might want to take a look at your savings account and consider the amount available to you. You could also examine how much you can cut from discretionary expenses in one week to see how quickly you can gather more money to deal with unexpected expenses. Once you have this number, you should think about how much that can cover. You may also want to look at the available amount on your credit card, as if you have maxed out the allowable amount, you might be in a tighter spot on that front.
Can you pay for emergencies?
It’s important to know if you can cover specific emergencies or not. Medical emergencies can be partially covered by insurance, and the hospital or doctor may be willing to set up a payment plan for the remainder. However, that means you might struggle for several months while working on paying off an old medical bill. Regarding car and home emergencies, it’s a different matter since most technicians and repair services expect to be paid at the time of the expense. When you find yourself in a situation where you need your car to get to work but can’t afford the repair costs, you may have to scramble to find money. It’s important to think ahead and start planning now so you don’t find yourself in this situation.
Use an emergency fund to solve your problems
An emergency fund is one of the best solutions to tackle this problem. A well-funded emergency fund can prevent you from using credit cards in an emergency and give you the peace of mind you need in tough situations. You should have between $1,000 and savings equivalent to one month’s income in your emergency fund so you can avoid debt, and then work on building up expenses that cover an entire year. This will help you cover from car repairs to job loss. You can start saving just $100 a month or set aside money with each paycheck until you begin building your emergency fund. If you are really living paycheck to paycheck, you may need to take a side job or consider selling some items to find money to set aside. If you are spending too much of what you earn on entertainment costs or dining out, you might be surprised by how much you can save by cutting back on spending. In this case, savings should come before debt repayment.
Ways
To Save Money Quickly
If you do not have an emergency fund, you should start building one as quickly as possible. You can do this by switching to a bare-bones budget and stopping all unnecessary spending. You can save money quickly by stopping dining out for a month. If you cook at home and prepare your lunch for work, you can save up to $200 a month, depending on where you usually eat. If you cut back on buying clothes or going to the movies for a month or two, you should be able to save enough to start your emergency fund. You may also want to consider selling things or taking a part-time job to build the cushion you need for your living expenses.
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Source: https://www.thebalancemoney.com/can-you-handle-a-500-00-emergency-4058561
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