Unexpected financial emergencies can leave a person feeling stunned and helpless. Whether it’s a job loss, medical expenses, or urgent home repairs, a sudden change in financial circumstances can be extremely overwhelming.
Assessing the Situation
Once you realize that a financial emergency has occurred, take a moment to sit down and carefully assess your situation. Running around in a panic will not solve anything; it will only increase your stress. A little panic may be understandable – perhaps you have a million things running through your mind, and staying calm is not one of them. However, the ability to control your emotions and carefully evaluate your situation at this critical point will ensure that you make the right decisions and avoid further difficulties.
Prioritizing Expenses
Not all expenses are equally important. Some bills must be paid before others, and if you cannot afford to pay them all, you need to prioritize. The most important bills are those related to food and shelter. Letting the internet service cut off is annoying, but it’s easier to find a café that provides free Wi-Fi than it is to find a new place to live, so mortgage and rent payments should take priority. You won’t think clearly or operate efficiently on an empty stomach. If you start skipping meals, you may find yourself sinking deeper into your crisis.
Negotiating with Creditors
If you are having trouble paying credit card bills, healthcare bills, or mortgage payments, contact your creditor as soon as possible. Believe it or not, their best interest is to help you repay. They would prefer to receive some money rather than nothing at all, even if it means lowering the interest rate or extending the term.
Finding Extra Money
In reality, you wish you had some money saved in an emergency fund to help cover any unexpected expenses, but that is not always a realistic expectation. Where do you turn when you’ve exhausted your savings accounts?
You can always try to take out a loan or use credit cards, but that might make the problem worse. While borrowing money can provide quick access to cash, it may also come with high-interest rates and a new monthly payment. These additional payments will stretch out the duration of your financial difficulties, and if you borrow a large amount of money, you may find yourself in an economic collapse that is nearly impossible to rise from.
Another option could be to check with friends and family. No one likes to ask for money, but getting a little help from a loved one may be just what you need to get through a tough time. Of course, this can also put pressure on some relationships, so you should handle this with care.
Finally, you may have some money available from investments or retirement accounts. Generally, withdrawing money from retirement accounts isn’t a good idea as it can jeopardize your retirement security. However, if borrowing money through loans or credit cards would create a long-term period of financial hardship, turning to your retirement account may be your best option.
If you currently have a 401(k) or 403(b) at your workplace, check to see if they have a loan provision. If you take a loan from your account, you may be able to borrow money without paying taxes and penalties (as long as you adhere to the repayment plan). If a loan is not an option, you may also be eligible for hardship withdrawals or even ordinary early distributions.
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Your retirement savings should be your last resort. Any withdrawals you make will be taxed at a higher rate than it would be during your retirement years. If you are under 59.5 years old, most withdrawals from retirement accounts come with an additional 10% penalty.
Taking Advantage of Available Assistance
The government has created social programs specifically designed to help people overcome sudden financial difficulties. In case of job loss, you may be eligible for unemployment benefits. If your job provided health insurance, be sure to look into COBRA to see if you can get affordable health coverage. If you are injured at work, ask about workers’ compensation. In some cases, you may also be eligible for state or federal benefits such as Medicaid or Social Security Disability.
These programs are funded by your taxes, so make sure to take advantage of them if you need them and if you qualify. If your difficulties are related to job loss, you may find helpful resources at your local community center. These centers often offer workshops and classes on topics such as resume writing, interview skills, and networking opportunities.
Planning for the Next Financial Emergency
Once you get through your current difficulties, take steps to lessen the impact of similar events in the future. Start by creating an emergency fund. A good rule of thumb is to have enough to cover your needs for a few months. This way, you won’t have to make difficult decisions regarding basic needs in the event of unexpected expenses. Of course, the more savings you have, the better off you will be, but don’t be discouraged if you can’t reach your savings goals right away. Any amount you manage to save will buy you some time to arrange your affairs.
Additionally, you should consider getting insurance. Most forms of insurance act as a safety net to cover unexpected expenses related to our vehicles, homes, health, and other aspects of our lives.
Having a plan in place before a financial crisis occurs will alleviate a lot of pressure off your shoulders. Know your expenses and have backup plans for how to pay them, and it will be much easier for you to handle the next emergencies.
Source: https://www.thebalancemoney.com/coping-financial-emergency-1289712
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