If youâ€™re someone who budgets and lives a fairly modest lifestyle within the constraints of a middle-class income, then you typically donâ€™t have much to worry about in terms of losing control of your finances. But what happens when a major unexpected expense arises? How do you deal with it in a fiscally responsible fashion?
Four Tips to Help You Handle Emergency Expenses
An emergency is never timely. Thereâ€™s always something else that needs to be done and very little time to deal with the issue. With that being said, the right response can mean the difference between a successful outcome and costly mistakes.
Here are a few helpful tips for handling unexpected expenses:
1. Nix Unnecessary Expenses
Start with unnecessary expenses in your budget. These are the first things that have to go. Unnecessary expenses include Netflix and cable subscriptions, eating out, playing golf, going to the movies, and even monthly gym memberships (you can always workout without a gym).
Sit down and write out a budget (if you donâ€™t already have one). Highlight the areas where youâ€™re unnecessarily bleeding money. Most families can easily shave a few hundred dollars off their monthly expenses by being honest with themselves and eliminating things that donâ€™t matter.
2. Tap Into Your Emergency Fund
If youâ€™ve been budgeting for a while, then you probably have an emergency fund available. Well, nowâ€™s the time to use it. Ideally, you have enough money saved up to offset the cost of the unexpected expense. But even if you can only pay a fraction of it, remember that having a small emergency fund is better than having no emergency fund at all.
In the future, you can start an emergency fund â€“ or replenish the one you just depleted â€“ fairly easily. Just set aside $25, $50, or $100 a month until you have enough in savings to offset three months of expenses. Once you reach this threshold, you can allocate your savings to investments and other accounts.
3. Get a Home Equity Line of Credit
â€œCar repairs, late fees and other issues can present themselves at the worst possible time, and not having the available funds to address the situation is enough to cause anyone to feel stress,â€ HomeEquityLineOf.Credit notes. â€œAlthough you might want to get a normal loan, it might not be the right choice for your needs.â€
Traditional loans can be costly to pay off and may end up putting you in more of a financial hole than the original emergency. Instead, consider a home equity line of credit. These loans use your homeâ€™s equity as collateral and let you borrow only the amount you need. You also donâ€™t have to worry about low credit or a poor financial history. Itâ€™s your money and you can gain access to it fairly easily.
4. Cash In On Bad Investments
While you normally wouldnâ€™t want to cash out when you have an investment thatâ€™s operating at a loss, this could be a good time to totally scrap a bad investment and rebalance your portfolio. Youâ€™ll also get a tax break on your losses.
Sleep On It
While you can easily unsubscribe from Netflix or choose to buy groceries from the supermarket instead of eating out, make sure you sleep on major decisions before reaching any conclusions.
When youâ€™re under financial pressure, itâ€™s hard not to make rash choices. If you plan on getting a line of credit, taking on a loan, or cashing in on an investment, sleep on it before making a final decision. These are all choices that have a far-reaching impact and should be carefully weighed.
With that being said, when you need money â€“ you need money. Consider these five good options for getting out of a hole quickly.