Just like windfalls will come, and a person’s financial life will feel easy, emergency expenses will come as well. Nobody likes it when sudden, unexpected expenses arise. They are never planned, and they are always a source of anxiety and worry. Regardless of how well a person manages their finances, at some point, they will experience an “emergency” that will require them to spend extra money. Depending on how well a person is prepared, these can either be inconvenient, or devastating.
While the majority of cash downfalls are unexpected, one can still prepare for them. It is almost certain that at some point in a person’s life they will experience an accident. They might total their car, incur high medical expenses, or have some other event that costs them a lot of money. Nobody wants it to happen, but by preparing for the unexpected, the individual can lessen the blow.
Preparing is as simple as starting an emergency fund. This fund should be kept in a savings or money market account, and it should have at least six months living expenses (many experts now say 2 years is actually better). With each paycheck where there is no big, unexpected cash outlay, the individual just needs to save as much as they can. Before the emergency strikes, make sure to have a plan on what to do.
That plan should include using the emergency fund first. This is why it exists. As it gets close to being depleted it would be best to talk with a debt consultant. For medical bills, most clinics will offer their consulting services free of charge. For other bills, seeking out a debt consulting company with a good reputation is imperative. Well before the emergency fund has even run dry the entire plan on how to get out of the debt and back into the positive should be ready and in place. The very last resort anyone should consider is bankruptcy.
Everyone dreams about, and often expects cash windfalls. Every so often it feels good to find a $20 bill or winning the lottery. It is much more exciting to dream about the home on the lake, the fancy cars, and the personal butler. Nobody ever expects, and subsequently many fail to plan for, a financial emergency. The reality is that most people will have emergency expenses that deplete their savings rather than a big win that increases it. For those who have taken the time to make a plan, and implement an emergency fund, the battle against the downfall will be much easier. For those who fail to even consider it, they will have a much longer uphill battle to get back to a positive net worth.