The Financial Side of Emergencies

Your boss called you into her office, and you immediately got that sinking feeling in your stomach. Sure enough, your position within the organization was eliminated. You were jobless. Or maybe the air conditioner went out at home, just in time for the sweltering summer months. Financial emergencies, most of us experience them at some point. Are you ready for one?

According to the National Foundation for Credit Counseling, 64% of Americans don’t have enough cash on hand to deal with a $1,000 emergency. That cost could easily equate to a financial emergency. Maybe your car’s transmission goes out or your furnace dies at home. What would you do if such a sudden financial cost arrived unexpectedly? Here are a few tips that might help out:

Step Back
Take a deep breath. Exhale. Ok, now evaluate your situation. Is it more a long-term concern like a loss of income, or short-term, like a new roof? The situation could dictate your course of action, such as taking a loan or dipping into savings.

Expenses Report
Paying bills takes on a whole new importance when you’re hit with a financial emergency. In this situation, not all bills are created equal. For example, bills that cover food and shelter; they’re at the top of the list. Cable and cell phone? They may seem important to you, but do they really trump food on the table and a roof over your head?

Cut!
Now comes the hard part, the sacrificing. You need money for the unexpected expenses, so you’ll have to find the funds somewhere. Trimming costs within your budget is a good place to start. Those premium movie channels you’ve enjoyed? Tough times call for tough measures. You may have to cancel HBO and the others. Do you have a land phone line and a cell phone? Perhaps one of them can go. Premium coffee? Try what’s on sale at the grocery store. You get the idea. Cut back where you can. Stick to the essentials.

Family Funding
Where else could you come up with the funds to help pay bills? Nobody likes to walk around hat in hand asking for money, but perhaps family or friends could offer you some temporary assistance? But beware, this can be a touchy subject. Be prepared to follow through on any promises of repayment.

Proactive
If you’re having trouble paying bills, don’t wait for threatening letters. Be proactive, initiate contact with your lender(s) and/or utilities. This will show them you’re serious about wanting to work something out. You can look at it like this: it’s in their best interest to work with you; their chances of being paid are much better if they work with you. Look into lowering interest rates, extending terms or developing a workable payment schedule. Many places will work with you in such situations.

401 OK?
As a VERY last resort, check with your employer to see if they offer a loan provision on your 401(k). You may be able to borrow funds without paying taxes and taking penalties, as long as you repay the loan. You may also qualify for a hardship withdrawal. Find our more and check with tax advisor for details.

Now that you’ve been through a financial crunch, perhaps you can see the importance an emergency fund. In a perfect world, we’d all have robust emergency accounts with six month’s worth of living expenses ready to tap, but unfortunately, such an account is not always easy to cultivate. But even if it’s adding just $10 a week, or $20 a paycheck, get one started. No matter how much you contribute, it all adds up over time, and it provides real peace-of-mind knowing you have something to fall back on in case of emergencies.

Vantage can help you with your personal finances as well. We offer financial counseling for all members through Accel. This service is free for Vantage members and can help you with such things as personal and family budgeting, money management, debt repayment and more. If you need advice about your finances, give them call!