More than 26% of working adults today do not have any savings for a rainy day. This is according to the ‘Savings Review Evidence’ report published by Money Advice Service. This group of individuals usually have a hard time tackling emergency expenses, which is in itself, stressful. It doesn’t, however, matter how much you earn per month; you could still set up a savings account to save just a little to cushion you during unpredictable times. Outlined below are a few tips on how to tackle unforeseen costs without sliding into depression.
1. Use Your Emergency Fund
An emergency fund is meant to help you handle any unexpected expenses that may come your way. Most people will set up an emergency fund to fund a home renovation, maintenance, an unexpected bill, boiler repairs, and more. Using the saved-up money to settle an unforeseen expense would, therefore, get you out of a fix, quickly.
The rule of thumb in setting up an emergency fund is to ensure you have at least 3 months’ worth of your expenditure in the emergency account. Experts believe this will be enough to cover most common emergencies as they arise. Just be sure to top up the amount as soon as possible.
Jesse Mecham, a financial expert, recommends setting aside some money in various accounts to cater for specific emergencies such as house maintenance and car repairs, among others. These targeted funds are less likely to be used up than if you didn’t set them aside for that specific task, he says. According to him, you are less likely to use up money meant for medical bills to buy something less relevant, say a birthday present.
2. Use Your Savings
You could also use up some of your savings to take care of the emergency. This is, however only recommended if the savings account won’t attract any form of a penalty. Be sure the savings aren’t meant for a more demanding project or purpose, otherwise, it will beat the purpose altogether. It wouldn’t, however, be advisable to borrow money from major investments to pay for an emergency. Such funds can only be used when you have nowhere else to turn to.
3. Consider Interest-Free Credit
Interest-free credit might be your ticket out of the emergency too. An excellent example of this is if you were involved in an accident and your car is damaged beyond repair. A good dealer may offer interest-free credit to finance a replacement for the same. You could also take advantage of interest-free credit to get a replacement for a carpet, sofa, or even a new boiler.
The trick here is not to take more than you need or can afford. Calculate how much would be required for this emergency and request for just that, nothing more.
4. Borrow From A Family Member
Studies show that more than 67% of youths have borrowed money from their friends and family. According to Money Advice Trust, their average borrowing is about $2,500. Borrowing money from a friend or family provides a flexible option to repay. It is less likely for a friend or family member to charge you interest on the loaned amount, or demand a fixed amount repayment each month.
While borrowing money from friends and family may be easy, it could affect your relationship and especially if unable to repay the full amount. A study conducted by StepChange (a debt charity) shows that 1 in every 3 people that borrowed money from family do not have the same relationship they had with the lender before borrowing money from them. It would, therefore, be advisable to borrow money from family and friends if sure you will repay them back on time. According to Mike O’Connor (Chief executive at StepChange), it would be best to ask for help before borrowing money. This way, anyone willing to help will do so without expecting to be repaid.
5. Use Your Credit Card Or Take A Personal Loan
A personal loan might be your only option, and especially if you don’t wish to involve friends and family, or your emergency fund cannot pay for the unexpected bill. Personal loans from Loanza.us give you easy access to small amounts of money to take care of sudden expenses and at a fixed interest rate too. Depending on your credit score, you can borrow anything from $1,000 to $25,000 easily. Shopping around for a personal loan could see you land a loan at the best terms and interest rate possible.
You could also use your credit card to settle the bill. Credit cards provide easy access to money, but at a higher interest rate when compared to personal loans. That said, personal loans and credit cards should be your last option when looking for financing. You might want to tread carefully if forced to try the likes of payday loans that charge exorbitant interest rates.
Setting up an emergency fund, while you can, can however save you from the frustration of seeking help from friends, family, or even taking up a loan.