Is building an emergency fund on your list of goals for this year? Have you found yourself facing an emergency that you’re financially unprepared for? The prospect of what to do in an emergency can feel overwhelming, but there are several steps you can take if you ever face a crisis.
What exactly is an emergency fund?
An emergency fund is an amount of money you set aside to cover unexpected expenses or basic expenses if there are significant changes to your income. How much you need in your emergency fund is unique to you and your circumstances. Keep reading to find out more!
Working With What You Have in an Emergency
The first step in preparing for an emergency is restructuring your current budget. While some expenses are difficult to change, such as mortgage or auto loan payments, there are plenty of areas that you can easily adjust to cut back spending and save money. This budget calculator can help you lay out specifics and make those adjustments.
Drawing from long-term savings, vacation funds, and other savings accounts can help bolster your finances in a pinch. Similarly, if you’re really in a bind, you could consider cashing in on investments. Even if returns may be lower than you would like, that money could help address your current emergency.
You should only withdraw early from retirement accounts like a 401(k) or IRA if absolutely necessary. Unless you meet certain criteria for an approved hardship, there is a 10% penalty for early withdrawals. Also, draining these accounts can significantly reduce your financial security during retirement.
Supplement Your Income
If your current assets just don’t cover you emergency, look for ways to get more. Consider selling valuables that you don’t need. Art, jewelry, antiques, and similar items may be hard to part with, but the money you gain from these items can carry you through a rough patch. Plus, online marketplaces make selling valuables easy to do.
If selling doesn’t make a big enough difference, try to increase your income by picking up extra work. Additional part-time or variable-hour work can help you quickly boost your cash flow. You could also ask your employer for an advance on your paycheck to help cover your current expenses, though not all companies will offer this benefit.
Remember that you don’t have to face an emergency alone. There are government programs put in place to help protect you and your dependents should you need it. This article describes some of the programs that will be most helpful to you. If you’ve been laid off, consider applying for unemployment benefits, or if you’re struggling to provide necessities for you and your family, SNAP or TANF can make up the difference if you qualify. If you currently don’t have health insurance, Medicaid or CHIP can help.
When you’re back on your feet, consider taking the time to prepare an emergency fund should you need it again.
Start Building Your Emergency Fund
To learn how to build and structure your emergency fund by adjusting your current budget. By clicking here, you’ll get started using one of our Financial Coach interactive sessions that will help you assess where you make changes in your budget. You should also consider Movement Bank’s savings options. We have savings programs that to help you start building your funds with as little as $10.