Unexpected personal finance emergencies can happen at any time and to anyone. While they cannot all be prevented, having money set aside in an emergency fund to deal with these emergencies can save a lot of money and stress should you ever find yourself facing any of these emergencies. In this post, we highlight five common personal finance emergencies you should be aware of and how you can prevent a financial disaster by having a sufficient emergency fund to cover the expenses related to any one of these emergencies.
The Importance of an Emergency Fund
Before we go into the five personal finance emergencies, we must note the importance of having a fully-funded emergency fund. Most financial experts recommend that you have between three and six months’ worth of expenses saved in an emergency fund that you can access at any time. The amount of money needed for your emergency fund will vary depending on your expenses. For example, if you were to lose your job and you have a high-cost mortgage, you would need more money in your emergency fund to cover that mortgage for a few months than someone who lives rent-free at a relative’s house would need.
As you read through each of these personal finance emergencies, consider how much money you would need in your emergency fund to cover each such scenario. This is a good place to start in determining how much money you should have saved up in your emergency fund.
1. Job Loss
Job loss is one of the most common personal finance emergencies a person is likely to encounter. No matter how secure one feels in his or her job, there are various reasons, both in and out of our control, that could cause job loss. Because job loss is so unpredictable, everyone should realize is a real possibility when planning for his or her financial future.
If you were to become unemployed, consider how long you think it would take you to find another job with similar pay. Are you the primary breadwinner in your family or could your family live off of a partner’s income if you were to lose your job? All of these factors are things to think about when determining how much money you need to set aside in an emergency fund in case of a job loss.
2. Medical Emergencies
Even if you have health insurance, a medical emergency can cost hundreds if not thousands of dollars in out-of-pocket expenses. If you do not have health insurance, a medical emergency will likely cost you far more than that. Like job loss, a medical emergency is something many people will, unfortunately, face throughout their lives.
In addition to the cost of the medical emergency itself, consider where your finances would stand if the breadwinner of the family were the person facing the medical emergency. If the medical emergency causes someone to be out of work for a long time, it is essential to be able to continue to pay your expenses without any income coming in for an indeterminate amount of time.
3. Death of a Family Member
We do not like to think about it, but all of us will face the death of a family member or close friend at some point in our lives. Many times, this death will be unexpected and require us to spend money on various things related to the death. We might need money to purchase an expensive, last-minute plane ticket to travel to be with grieving family members. Insurance may cover funeral expenses, but everyone does not have this insurance and it does not always cover all funeral expenses, so those costs can add up as well.
In addition to the costs associated with a person’s death, a personal finance emergency you might encounter is if the person who has died has been financially supporting you or others. Plans should be made to prepare for if and when that income is no longer coming in.
4. Unexpected Home Repairs
While homeowner’s insurance usually covers basic expenses and maintenance of the home, it does not cover everything you might face as a homeowner. Unexpected, major home repairs are likely to pop up during your ownership of a home. While some home repair things can wait, such as a remodeling of your kitchen cabinets, others simply cannot. Whether your bathroom plumbing needs to be replaced or you need a new boiler to heat your home in the dead of winter, emergencies can pop up at any time and you should be prepared to hand over a lot of cash to fix the problem.
[ Read more about how to get home improvement without debt ]
5. Car Repairs
Many of us rely on our cars as a primary mode of transportation to get to and from most places, including our jobs. Therefore, an unexpected car repair is a personal financial emergency that we are likely to encounter and that we should put ourselves in the best position to pay for. Preferably, for this type of emergency (as well as for any others), we would not have to use a credit card to cover the expenses, especially if we are already carrying debt.
What can You do to Prevent a Personal Finance Emergency from Ruining Your Finances?
The first step is to have a well-funded emergency fund. Beyond that, it is also a good idea to be free and clear of all debt. If you are carrying a large amount of credit card debt, for example, you can work to pay your debt off with the help of a debt relief company.
Various forms of debt relief, such as debt settlement or credit card consolidation, might be options for you. Contact a debt relief company to discuss these and other options for relieving yourself of debt. Seeking debt relief, combined with having a fully-funded emergency fund, will put you well on your way to protecting yourself as best you can from these and other unexpected personal finance emergencies.