It’s always the most joyous time of the year when the unexpected seems to occur, and so it is important that you’re prepared for financial emergencies and other unexpected expenses. These can range from the mundane – needing to get your car repaired, to catastrophic emergencies like Hurricane Sandy. The funny thing about financial emergencies and unexpected expenses is that nothing is really unexpected. In fact, they are inevitable. So here are some things to think about and plan for so that you’re ready for when the unexpected actually happens.
Most Common Unexpected Expenses
There are a lot of reasons why you could experience a financial emergency. Maybe you didn’t stay safe during the holidays… Maybe you had an unexpected job loss… Things can happen at any time, but here are some of the most common financial emergencies that Americans deal with everyday.
- Job Loss – The economy is still not producing as many jobs as are needed to keep up with population growth, and the economy is still weak in many sectors. As such, companies are still laying off large numbers of workers, and this could affect you unexpectedly.
- Medical Problems – Health care costs are one of the most common causes for personal bankruptcy in the United States, because a single accident or health care incident can cost hundreds of thousands of dollars.
- Accidents – Accidents can come in all shapes and sizes: an auto accident can wreck your car, or a leaking water heater can wreck your house. The bottom line is that accidents cost money, so make sure that you’re prepared for them.
- Natural Disasters – Natural disasters can strike at any time, and you should know and understand the risks of what can occur where you live.
Handling Financial Emergencies
Now that you’ve thought about and understand the most common types of unexpected expenses, you should make sure that you understand how to handle them. Too many people make mistakes when handing a financial emergency, and it can make the emergency even worse. Here is a simple guide to walk you through handling financial emergencies of all shapes and sizes.
Understanding the Situation
First, you need to make sure that you fully understand the situation and have all the facts straight before moving forward. This can take time – but that’s okay! Too many people rush when dealing with situations, and end up making financial decisions that cost them more later on. If you’re dealing with a job loss, accident, or other emergency, make sure that you take the time to fully understand your options. Look for resources. There are a lot of great resources out there for these common types of financial emergencies.
For example, you may look at these tools that could apply to your situation:
- Job Loss –
- Medical Assistance –
- Accidents –
- Your Insurance Company (i.e. Auto Insurance, Homeowners Insurance)
- Natural Disasters –
- Your Insurance Company
- FEMA Disaster Survivor Assistance
Develop a Plan
Once you understand your situation and financial emergency and know the tools you have at your disposal for dealing with your unexpected expenses, you can start to develop a plan. You need to find and identify ways to pay for your expenses. This could be from your emergency fund, from insurance payments, or from other sources.
You may need to get creative in finding money to pay for the repairs or bills you need to. This could include any of the most common multiple income streams: selling your stuff, developing a side hustle, and more. Some of the bigger financial emergencies could take a long time to deal with, and so you will have a longer period of time to develop a plan.
Get Help if Needed
Finally, don’t hesitate to get help if needed. When dealing with unexpected expenses, too many people rush and don’t get solid advice. Sometimes, paying for outside, unbiased advice, can easily pay for itself in the savings you’ll reap later on. For example, you may want to consult with a financial planner to see the best options for your finances during the emergency – should you get a loan, use cash, etc. If you need to have repairs done, get multiple quotes so that you know what is realistic to spend.
It is okay to get help if you need it!
Preparing for the Future
Finally, it is essential that you prepare for the future and are ready for these types of unexpected expenses. A great way to start is to build an emergency fund. A lot of people ask how much you really need in an emergency fund, and it’s a tough answer. My advice is to make sure that you meet the following criteria in your emergency fund:
- Have 6 to 8 months of expenses
- Have enough money to cover all insurance deductibles
- Have enough money to pay for your health insurance out-of-pocket maximum
Also, you should build a network of people around you that you can trust. These can include friend and family, but also have people that are knowledgable about finances, construction, cars, etc. That way, if something does happen, you can get advice from someone you trust and knows you and your situation. That will usually be the best advice.
Finally, make sure that you have all the necessary paperwork in order. Estate planning is tedious, but it’s essential. Have updated documents like wills, trusts, and powers of attorney. Make sure that other people know where they are located, so that you can get the help you need should something happen.
How do you prepare for unexpected expenses? What tips do you have?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.