Financial emergencies are unavoidable. They may hit even those with above-average incomes and well-planned budgets. Although financial emergencies are something that you can’t wish for or prevent, you can still plan for them. Let’s contrast the distinction between a financial emergency and a non-emergency and find out how you can manage them.
What’s The Distinction Between Financial Emergencies and Non-Emergencies?
A financial emergency is an unanticipated expense that can destabilize your financial situation or result in other serious effects if you don’t resolve it fast. Commonly, financial emergencies impact the most important areas of your daily life. They are often related to health, home, family, work, or moving. Financial emergencies should be covered as soon as possible. They always need well-thought-out and coordinated actions.
Non-emergencies are non-essential living expenses that won’t impact your financial position much, even if you don’t deal with them instantly. For example, a wedding celebration or a family vacation are non-emergencies that you can effortlessly do without.
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Most Common Financial Emergency Examples
An unexpected financial emergency is more effortless to be ready for when you know your enemy in person. Here are the most common kinds of financial emergencies.
Medical Emergencies
Healthcare in America often comes with outstanding medical bills. Outstanding medical debt in the country was at least $140 billion in 2021. These statistics indicate that covering a medical emergency without additional help can be a huge problem for many Americans. Additionally, medical costs are named as the main cause of why people withdraw money from their retirement savings accounts.
Even if you have a health insurance policy, facing out-of-pocket medical expenses is almost unavoidable. If you face a significant financial emergency, your medical expenses will accumulate, leaving you with a huge debt that you can’t afford. If your savings account balance is low, you often have no option but to go into debt to cover medical care costs.
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Divorce
When you and your spouse just get married, divorce is the less likely thing that you feel about. But life is life. Statistics show that nearly 50% of all marriages in America end in divorce or separation. These numbers are not meant to disturb you, but they can be an excuse to prepare for such an outcome. Being pragmatic often helps save money in situations like this.
The most general divorce-related expenses include hiring attorneys and dividing assets. Additionally, this can result in significant changes in your everyday lifestyle and usual financial position. As with any other emergency, preparation is the key. It will support you go through the whole process with minimum possible financial damage.
Car Breakdowns
Whether your car breaks because some parts of the vehicle is out of order or due to a natural tragedy, it’s a situation that often needs a speedy fix. Ignoring the issue may cause it to grow bigger. Also, keep in the sense that driving a defective vehicle is not only restricted but also unsafe. This can cost you your life and, at the finest, lead to more serious car breakdowns.
Car repairs are often an expensive expense category. The exact price depends on the nature of the breakdown. For instance, the most common repair in 2021, which was replacing the catalytic converter, had an average cost of $1,355.
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Sudden Unemployment
An unanticipated job loss often seems like the end of the world, especially if you’re the only one who works in your family. But even if your partner has a steady source of income, sudden unemployment still transforms your regular lifestyle and makes your financial issues snowball.
Unfortunately, most people are not trained for such situations. This occurs because they are living from hand to mouth and don’t have spare money to create a high-enough emergency fund.
A Death in The Family
When someone in your family dies away, it’s always both emotional and financial devastation. All funeral- and burial-related costs are exorbitant. Caskets, embalming, or cremation may cost thousands of dollars. Plus, it can add more financial burdens to you. For instance, if it’s your partner who passed away, you become the one who must pay the mortgage, cover bills, and save money for your children’s future college education.
Unexpected Move
You may feel that it will never happen to you, but there are various reasons for the unplanned move. Most people are forced to migrate due to getting a new job or going through divorce or foreclosure. Whatever your logic is, moves are always expensive and tedious. You have to think about tons of things, from hiring a moving crew to finding money for your rental down payment or buying equipment.
Unplanned Home Repairs
Household repairs are a standard reason why people dip into their savings. If you’re a homeowner, you likely know that things can go wrong at the most unsuitable moment. Your house may demand roof repairs or replacement, water damage correction, foundation problems, and other high-cost activities to keep it in good condition. Some emergencies can also be a safety problem, so you need to be prepared to fix them on the spot.
Pet Emergencies
As about 70% of American households keep pets, this expense category is quite typical for most people. Even if you think that your pet fees are under control, health issues can arise all of a sudden. Managing them can be quite costly, especially if you don’t have pet insurance. Are you ready to pay for an emergency surgery, broken bone, or dental care? All these expenses may put a dent in your wallet if you don’t ready for them in advance.
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How You Can Handle a Financial Emergency
Although you can’t prevent a financial emergency, there’s always a manner to handle them. Forewarned is forearmed. Beneath are practical ways to get prepared for an emergency.
Create an Emergency Fund
The best manner to feel confident when an unplanned expense arises is to start preparing for it in advance. When you have emergency savings, you can minimize pressure while getting through tough times. Even if your savings will be lower than the required amount, it’s still better than nothing. Start small rather than going around in a circle. Next time you face financial emergencies, you will see the contrast.
Opening an emergency savings account is one of the most amazing ways to start. This will support you in keeping money away so as not to spend it unnecessarily. Reach your bank and ask about available options. Pay awareness to withdrawal terms and fees that a bank may apply. Then, try to set aside a specific amount each month. It may appear that you don’t have spare money to save, but in most cases, there are expenses that you can cut off to free up some money. Even minor modifications in your spending habits can give great results over some time.
Take Preventive Measures
Some unpredictable expenses can be postponed or minimized by taking simple preventive steps. Do regular check-ups, buy a health insurance policy for you and your pet, keep track of your house’s condition, and follow the guidance for the operation and maintenance of your car. All these steps can assist you in avoiding some future financial emergencies. Keep in mind that some costly repairs or medical bills will never occur if you are one step ahead of them.
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What’s The Best Way to Pay for Unplanned Expenses?
If you’re one-on-one with your financial emergencies and require more money to overcome them, here are the finest options to turn to.
Personal Loans
A personal loan can provide you with sufficient money to cover the most common financial emergencies. Personal loans generally come with amounts of up to $50,000, with some options offering up to $100,000. The repayment is made over 1 to 5 years in equal monthly installments. To get a personal loan, you need to establish a strong credit history and have a high-enough income for the asked amount.
Online Loans
Online loans are creative loans that are popular with bad credit borrowers. However, people with credit problems are not the only ones who use them. These financial options have a few more benefits over conventional loans. First, they are much faster to get. It normally takes you 24 business hours to access the funds in your checking account. Also, they can be obtained online from anywhere. You can apply without leaving your house and adjusting your schedule. Finally, they don’t affect your credit score.
Online lenders offer a broad range of options that are available with any credit. You can get a assured $300 loan with bad credit or obtain an instant $5,000 loan with no credit check. The flip side of the coin is their cost. Online loans often come with higher than the national average interest rates. Make sure you do your research, for instance, if you’re in Singapore, find a licensed money lender in Singapore.
Credit Card Cash Advances
If you have a right credit card, you can withdraw money from its balance within the limits set by an issuer. Such a cash advance is a lightning-fast way to get the required funds because you don’t need to apply for it and stay for a loan decision from a lender. You can simply withdraw cash in a branch or ATM. Regardless, a credit card cash advance can be expensive. It doesn’t have any interest-free promotional period. Interest rates are more elevated than on your regular credit card purchases and start accruing instantly.
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Cash Advance Apps
Cash advance apps can deliver you with fast short-term loans in a few clicks. You need to install one on your smartphone and sometimes pass a registration to get begun. Then, fill out a simple loan proposal form to pre-qualify. A lender will check your details and email you back with a response. If authorised, the funds will be deposited to your bank account shortly after you e-sign a loan agreement. Cash advance apps will fit you if you need a small amount for a short period. Some of them cap their loans at $300 or $1,000. Also, loans from cash apps can be costly.
Conclusion
The most typical financial emergencies always impact the most important areas of your daily life. From medical emergencies to unexpected home repairs, the best manner to handle them is to create an emergency fund and take some preventive steps to minimize the risk of their occurrence. When you plan for unanticipated expenses, you can avoid financial stress at the moment they arise.