We recognize that right now is not the best time to prepare ahead of time for an emergency. However, we hope that you’ll be able to use this in the future to get ready for the next emergency. In the meantime, many in our community have provided coronavirus resources that can help you get through this time.
Unexpected emergencies can wreak havoc on every aspect of your life, including your finances.
Your financial situation can dramatically change overnight from a variety of emergencies. From losing your job to experiencing a natural disaster to responding to a global pandemic like the novel coronavirus.
And these emergencies can be even more devastating if you’re already living paycheck to paycheck. According to a recent Federal Reserve survey, 17% of adults aren’t able to pay their current bills in full — and an additional 12% wouldn’t be able to if they had an unexpected $400 expense.
The survey also determined that around 40% of Americans wouldn’t be able to cover a $400 emergency with cash, savings or a credit card that could quickly be paid off. Meaning a significant portion of the country isn’t prepared to financially handle a disruption in their income or standard of living.
But you can be ready for the unknown by planning ahead. Here are some ways to financially prepare for life’s many curveballs.
8 ways to prepare for a financial emergency
Create a budget.
Put a budget in place before you’re forced to tighten your belt. Know what your expenses are and take steps to reduce any unnecessary costs. Can you drop your expensive cable package for a cheaper streaming service? Are you regularly using your gym membership? When was the last time you shopped around for electric, phone and internet provider plans? The more expenses you can cut back on now, the better position you’ll be in if your income drops unexpectedly.
Keep cash on hand.
If a disaster strikes, your normal banking structure may break down. There may be limited access to ATMs or a disruption in electronic payments during the immediate aftermath of an earthquake, flood, tornado or other natural disasters. So, it’s important to keep enough cash on hand to cover at least one month of expenses. But be sure to keep your cash in a fireproof and waterproof container, like a lockbox or safe — not under your mattress.
Build an emergency fund.
Open a high-yield savings account to stash away emergency funds. Aim to save at least three to six months’worth of living expenses. If you’re starting from scratch, begin by saving $1,000. This smaller goal can feel less overwhelming and more attainable. Be sure to set boundaries on which scenarios are deemed an emergency and which ones aren’t. You don’t want to dip into your emergency fund unless you absolutely need to.
Develop back-up skills.
Even if you have a stable job, things can change in an instance. Spend your free time developing new skills to best position yourself in the job market. You can take evening courses or take advantage of free online resources to practice relevant skills that will help boost your resume.
Create multiple streams of income.
Today’s gig economy makes it easier than ever to earn extra money with a side hustle. For example, you can use your expertise to offer consulting services, work as a virtual assistant for online entrepreneurs or create digital products that provide passive income. If you’re able to diversify your income, your livelihood won’t be as dependent on one particular employer.
Review your insurance coverage.
Look into different types of income-replacing insurances. For example, you may want to increase your disability insurance coverage if your current plan doesn’t cover the majority of your income. Additionally, if you have a family, you should explore life insurance options that will help support your spouse or children in your absence. You should also review other types of insurance to ensure you have adequate coverage and aren’t overpaying. Look over your home and auto insurance plans and compare rates annually with comparable competitors.
Improve your credit.
As a last resort, you may need to fall back on credit cards or loans during an emergency. Make an effort to improve your credit by paying your bills on time and making extra payments toward your debt whenever you can.
Know what resources are available.
There are many local, state and federal assistance programs available to residents going through financial hardships. These may include benefits like Medicaid coverage, unemployment payments and supplemental nutrition assistance. But they vary depending on where you live and can often be difficult to track down when you’re already experiencing a stressful situation.
Additionally, many of these relief programs get overwhelmed during a crisis which can delay getting basic information over the phone. So, it’s better to do your research ahead of time.
If you find yourself struggling to pay your bills during or after an emergency, contact your creditors and loan servicers as soon as possible. They can work with you to figure out payment options to prevent you from going into default.
An unexpected emergency shouldn’t cause you to go into massive debt just to continue living and supporting your family. By financially planning ahead, you’ll provide yourself with a safety net to quickly respond to your changing circumstances.