Dealing with the day-to-day ups and downs of managing your personal finances can already be a challenge. After all, controlling your spending habits and sticking to an established budget so you can save for the future aren’t always easy. And when a financial emergency arises, your monetary well-being can become even more dicey.
So what do you do when you encounter an unexpected financial setback? Whether it’s fallout from a car accident, job loss, or even marriage or divorce (yes, both of those can bring about financial troubles), it is important that you have a way to keep these events from ruining your financial health. The following tips offer some key insights into how you can navigate a financial emergency.
Should You Borrow Money?
One of the first questions many people ask themselves after running into financial trouble is whether or not they should borrow money. This is a serious matter that should not be taken lightly. While there are many money lenders that serve as a fast source of money for people who have bad credit and need money quickly, loans can result in additional financial hardships if you’re not careful.
Before you borrow money, you should take a close look at your current financial emergency. Is it a one-time setback that won’t drain your finances for long? Or is it more of a long-term issue, such as the loss of a job? Most lenders aren’t going to be a good solution for long-term financial support, especially since loan repayments will increase your monthly expenditures as time goes on.
The more you know about a lender’s loan repayment plans, the better informed you will be as to whether or not taking out a loan is a good idea. Getting the money you need to handle a financial emergency is great, but not if it means that you’ll struggle to pay the bills in the coming months as you make loan interest payments. On the other hand, if you know you’ll be able to handle the monthly interest payments, it could be exactly what you need.
Analyze and Adjust
Another solution to dealing with financial difficulties is to analyze and adjust your budget. For most people, resolving a financial emergency will require some sacrifices. Take a look at what expenses you can realistically do without. For example, you may need to give up your weekly dinner dates. In more extreme situations, you might even need to move to a less expensive apartment or even temporarily move in with friends or family.
While these sacrifices aren’t necessarily pleasant, they could make all the difference in your ability to deal with a setback while still meeting your other financial obligations. In many instances, simply removing unnecessary expenses (like a daily Starbucks run) can provide just enough of a financial boost to help you recover, while also establishing smarter spending habits for the future.
For many people, the best solution to dealing with a financial emergency is to be prepared long before anything happens. When you establish your monthly budget, you should set aside a small portion of your monthly income to an emergency savings fund.
Obviously, the more money you can set aside the better, but every little bit helps. As you consistently save each month, you build up a solid financial reserve that is specifically designed to help you deal with unexpected setbacks. While these savings may not be able to completely cover your costs, they can certainly help by allowing you to take out a smaller loan or only make minor adjustments to your budget.
While preparedness is always the best solution to dealing with any type of emergency, it’s understandable that even the best you can do isn’t always enough to be fully prepared. But as you make an effort now to put aside extra money, and then learn to adjust your budget and make informed decisions regarding loans when an emergency does occur, you’ll be better equipped to recover from any financial setback.