Do you know what to do if a financial emergency strikes all of a sudden at your doorstep? Well during this time people might feel the need to panic and begin to do irrational things with their money. For example doing cash advances with a 20% or greater interest rate. Emergencies usually are based on various levels to different people, and it is on you to assess things before running to one of the worst financial lending institutions like payday loans sponsored by a famous 90’s talk show celebrity. This article is going to be based on a fictional emergency level 7, which results in an emergency that is not life threatening. (Level 10 would be the highest level) Ok now let’s discuss the steps anyone can take to get out of the emergency and not to hurt ones wallet too drastically.
When a Financial Emergency Strikes:
Obviously you will stop all spending and halt any payments to creditors.
Only spend on immediate needs like Food and Gas, Halt everything else.
Assess how much total in savings you can tap to avoid adding Debt
Cash out any CD’s / Savings accounts you may have even if you will incur a penalty
Talk to your Brokerage account company about withdrawing from Roth IRA as contributions are allowed Penalty Free
Do not take out a 401K Loan until you assess all savings options mentioned above.
If you are still short money wise, talk to any open credit card accounts about raising your credit limit
Talk to family members and see if they can provide you with a financial gift or temporary loan.
If you are still under on funds, you may consider, selling big items around the house.
At this point if you’ve exhausted all resources, then you can use credit cards or credit checks and lastly a 401K loan.
These are all the steps you can take when a financial emergency strikes your household budget. Now that you are more informed do you feel more at ease to handle a financial emergency? The secret weapon in all the steps is the Roth IRA fund, because it serves as a financial retirement tool when all is well and an emergency fund when things are not so good. If you do not have one I suggest you take care of that a.s.a.p. through a preferred online broker. Anyone can begin investing as it is the real way to alleviate financial stress. In times like these I know you may wonder why me, but with every mishap you will become a bit stronger to tackle any financial obstacle.
Additional Resource on Emergencies- Here
As always remember the lesson that many financial emergencies can be avoided if you maintain adequate savings aka emergency funds.
Comment if you have a suggestion when a financial emergency strikes?
Rich Uncle EL
Good tips. You're on the money (hah) with being prepared by having an adequate emergency fund set aside. I think that's my #1 piece of advice–plan for the unexpected at all times!
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Yes it is the best way to have peace of mind. Thanks for stopping by Mrs Frugalwoods.
I count on my emergency fund as my stress buster, and yes, I've had to dig into it when hubster's variable income was low for a number of months. Some of it is in cash and the rest (up to 6 months income) is in TFSA's (from Canada) which is something like Roth IRA. For our mortgage which we are trying to pay off quickly, our bank offers a double up payment option. I double which brings down the principal that much fast but that's not all. Each additional payment counts as a 'brownie point', such that, if we ever had a big financial emergency we could stop paying our mortgage for the number of payments that we doubled up with no penalty. So in a way, it sort of counts as part of my emergency fund as well.
My recent post Reasons Iâm Happy Iâm Not Going to FinCon
Hey Debtdebs thanks for sharing your emergency fund money pack up plan. The bank you deal with is a good bank to offer customers those great services.
I would probably move back home. I live about an hour away from my parents. I also live within a mile of at least five of my best friends. So should something dire happen, I could reduce my expenses to almost nothing just by relying on my support system. I did that for a month when I moved out of mine and my ex's old apartment and figured out my next move.
My recent post Why I’m Giving Up My Daily Latte. Trust Me, It’s Not Why You Think.
That’s a good point Stef, and if people have that support system they should utilize it in a financial emergency. I guess its ok in a transitional period staying with friends and family, not for more than a year because it might impede privacy for others.