Finance experts have been recommending for years that people tuck money to the side just in case there’s an emergency they need to handle. Even those who have a well-planned budget may run into a circumstance that causes their finances to take a hit. An emergency account provides coverage in those instances. There are a lot of people who have taken heed of this advice and started saving, yet they withdrawal funds for reasons that don’t necessarily constitute an emergency. Then, when there is an emergency, they find themselves unprepared.
What is a Financial Emergency?
So, what is a financial emergency? In a nutshell, it’s an unforeseen event that results in the need to cover an unexpected expense. The problem, if not resolved quickly, can have a major impact on your life. This typically happens in three areas of a person’s life, their home, health, or jobs.
Housing – Housing is something you need. As a homeowner, there are a lot of responsibilities that include keeping up with the maintenance, repairs, and other associated costs. If a pipe breaks in the house and starts flooding, allowing it to continue could result in water damage, mold, and the loss of personal belongings. If a gas and electric bill is on the brink of shut off and you don’t pay it, you’re going to be in the dark. Ideally, these are reasons you may turn to resources like quick installment loans to cover the costs because doing nothing would make life complicated and create other financial hardship.
Health – Your health is everything. If you’re involved in an accident or hospitalized for other reasons, you’ll be financially responsible for covering the bill, prescriptions, and medical equipment. As most insurance policies don’t cover everything, this could mean a sizeable amount of money. Not paying for the services, getting your medication, or buying the equipment you need to get better only prolongs your recovery efforts. Medical problems, that are significant, are definitely worth dipping into your savings account for.
Employment – Your job is your livelihood. It is how you afford everything from the clothes on your back to the house you live in. Should you lose your job or have to take a sizeable pay cut, you no longer have a source of income to afford the things you need. Obviously, doing nothing, in this case, will result in bills piling up, the loss of your vehicle and home, and potentially, the inability to afford the bare necessities like food and clothes. Having several thousand dollars in a separate savings account gives you time to recover from the loss of your job while you look for a new one.
So how do you know when it’s okay to dip into your emergency savings account, sell a few things, get a side gig, or borrow from a short-term lender? You ask yourself whether the expense will alter your quality of life if you do nothing about it. If it doesn’t pertain your housing, health, or job, then perhaps you should wait it out or find another solution. This way, when there really is a financial emergency you have the funds and resources to handle it quickly.