Financial, Lifestyle

Are You Ready for a Surprise Expense?

Money Roll

Your finances are in perfectly fine shape — as long as everything goes to plan. You can manage all of your essential expenses with your paychecks, but you never have much money left over. A single surprise expense could upend this delicate plan and send you into a panic.

Americans Living on the Edge

You’re not the only one who lives this way. According to the Federal Reserve, only 68% of adults can hypothetically cover a surprise $400 expense with cash, personal savings, or its equivalent. In this case, the equivalent would be charging a credit card and paying it off by the next statement. The remaining 32% of adults admitted that they are in the same position as you. They wouldn’t be able to handle this type of expense by paying out of pocket.

Not being able to pay right away doesn’t mean that you’re out of options. You can still borrow money to cover an emergency expense quickly and then make steady repayments afterward. Personal loans are effective digital borrowing options available to people in your situation. As long as you meet all of the loan requirements, you can fill out your application online and submit it. Soon enough, you’ll receive a response regarding your loan status. That response could let you know that you’re approved and free to use the funds to get out of your tricky situation.

While borrowing is an option, it shouldn’t be your first solution in a crisis. You should have savings set aside to handle a small emergency — at least one that’s $400 or less.

How to Handle an Emergency Expense

The best way to handle an emergency expense is to have an emergency fund on standby. An emergency fund is a collection of personal savings specifically reserved for urgent, unexpected expenses. When you face an urgent, unexpected expense, you can withdraw the necessary savings from the fund and pay for the expense, all without disrupting your normal budget. You should be able to manage your essential expenses, like your groceries and your rent, as normal.

How to Build an Emergency Fund

Adjust Your Budget

The first thing that you’ll need to do is give your budget a good hard look. See which variable expenses you can reduce or non-essential expenses you can eliminate for the sake of savings. This could mean canceling subscriptions that you don’t need, dropping your cable package, or reducing your spending on food delivery services.

Open a Savings Account

You’ll need to open up a savings account if you don’t already have one gathering dust. A savings account is the best place to store an emergency fund because it’s easily accessible. When disaster strikes, you don’t want to wait days — or worse, weeks — to access your savings. You want to be able to reach your savings right away. A savings account will do that for you.

Once you open a savings account, add your budgeted savings inside. It may not look like much at first, but over time, you’ll build yourself a considerable safety net.

To help your emergency fund grow faster, you should get a savings account with a high-interest rate. Online-only banks are more likely to offer benefits like higher interest rates than large, brick-and-mortar banks because they don’t have to contend with the same overhead costs.

Automate Contributions

Your emergency fund won’t grow if you forget to add to it. You can avoid this problem by automating contributions from your checking account to your savings account. Through your online banking, you can set up this automated transfer on a monthly basis.

Start your emergency fund as soon as possible. That way, you’ll be ready for a surprise expense, whenever it shows up.


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