It’s impossible to predict when and how emergencies will come. Crises like car accidents, personal injury, and job loss strike Americans every day. They’re an inevitable part of life, so it’s just a matter of time before disaster strikes.
One of your best defenses is to be prepared, and your savings for an emergency is no exception. Here’s how to be ready for facing the toughest of challenges to your life and your wallet.
The classic advice for having cash ready for when you’re in a bind is to have an emergency fund. The reason: it actually works!
If you’re relying on credit to bail you out of emergencies, you’re asking to fall into debt. You face the possibility an even more expensive and stressful situation if you’re borrowing to pay any sudden expenses. Instead, you need money that is set aside strictly for genuine emergencies.
The next question is: how large of a fund do you need?
Money expert Dave Ramsey recommends that you start small. Shoot for $1,000 emergency starter fund, and fill it as quickly as you possibly can. This will cover basic emergencies, when you need a few hundred dollars in cash and fast. Make your emergency fund your priority, and seriously consider putting every extra dollar into the fund until you hit this target amount.
After you’ve hit $1,000, don’t stop there. Work on setting aside enough for 3-6 months of living expenses for you and your family. This helps in major emergencies, such as losing your job or aren’t able to work due to injury. This seems like a lot of money to put aside, but it’s always hard to imagine the situation occurring until it really happens.
Make Sure Money is Readily Available
For an emergency fund to really do it’s job, you need access to it on a moment’s notice. This means that it can’t be buried away with a certificate of deposit (CD), invested in the stock market, or in another account that you can’t draw on immediately.
Stick with funds that you can withdraw directly from an ATM. The best option is typically a separate savings account. This can be in a physical bank or online account as long as you have the ability to get it fast.
As mentioned above, this money can’t be spent, lent, or removed for anything else other than emergencies, no matter what.
Be Ready to Cut Back
If your financial emergency involves thousands rather than hundreds of dollars, you might have to adjust your lifestyle and spending, at least temporarily. While it’s not fun to think about, you’ll have to consider cutting back on meals, entertainment, and trips.
The best way to examine the situation is to look at your monthly spending for your budget and figure out how much of it is on needs and how much on wants. Be very honest with yourself to figure out what the real minimum amount you need in the bank to get by each month. Write down what types of things you can cancel or cut out of your budget if need be, like monthly subscriptions or dining out. If you can trim expenses, you’ll be able to make your emergency fund last longer and prolong the time period before savings run out and real desperation hits.
Get Properly Insured
Having insurance isn’t always cheap, but you’ll be thankful to have it in situations that you really need it. Sure, it seems like it’s optional when you’re just paying your premiums and not getting any of the policy benefits. But when you need to file a claim because a tree fell on your house or you’re rushed into the hospital for a medical emergency, you’ll be thankful you’re covered.
Make sure you have some of the essential insurance types that make sense for your life. You don’t necessarily need to go out and buy insurnace for everything tomorrow, but stay on top of the types that make the most sense in your life. Health insurance is essential for nearly everyone, and you’ll want to consider life, homeowner’s, and renter’s insurance depending on your living situation and family status.
Be Prepared to Find Outside Help
If you’re facing a real disaster, and you can’t get by on your own, there might be outside help available. Hopefully you never need to use any of these services, but it’s helpful to know that what’s available since Americans do face these problems every day. Some examples include:
- Disaster relief – If a natural disaster hits, you may be able to get relief from the government. Make sure to stay up to date on what assistance might be available by visiting DisasterAssistance.gov.
- Food assistance – If you’re unable to pay to feed your family, be aware of food assistance resources available to you in your area. Every state has a Supplemental Nutrition Assistance Program (SNAP, formally called “food stamps”) where you can get financial assistance to buy food. There may also be food pantries and soup kitchens nearby.
- Shelter – The Red Cross often provides emergency shelter in the case of fire or disaster. If you’re in need of shelter for other reasons, check with local government, churches, and service agencies to see what help is available in your area.
Of course, it’s always possible to ask for help from friends and family. While it’s never fun to ask others for money, it’s possible they can provide food, housing, or other support when you’re in dire need.
The overall message is to always be prepared for the worst. If you’re prepared for the most severe emergencies, you’ll be set to handle the smaller ones just fine.