If you lost your job, how long could you survive until you found another one? Six months? Three months? One month? If you’re like most Americans, you’re actually only one paycheck away from the street if you lose your job. And if you’ve suddenly found yourself in that position, do you know what to do right now to survive your financial emergency? If not, read on. This blog post will give you three tips for surviving your current financial emergency.
1. Save for an Emergency before it Happens
Financial expert Dave Ramsey tells people in his book “Total Money Makeover” to start saving up for an emergency. He suggests that they first work toward putting $1,000 in an emergency fund. This money isn’t to be used for anything except an unexpected emergency, such as repairs for the family car or that unexpected trip to the vet.
Many of your financial emergencies will be of this kind, big enough to cause you some financial distress but small enough to take care of with an emergency fund. If you must use your emergency money, be sure to fill it back up once your emergency is over. Save up your money until your emergency fund has $1,000 in it. Repeat the process each time you deplete it so that you’re never without this fund for very long.
2. Put at Least Six Months of Income in Savings
Again, being prepared for a big financial emergency is just that, being prepared. Most financial experts suggest that you put away enough money to survive six months without a job. You’ll want to look at your entire budget to determine how much you should save. Your savings should cover your rent/ mortgage, utilities, food, incidentals, etc.
So, what happens if you encounter a financial emergency before you can save up the money you need? That’s when you need to look at benefits, like unemployment, job retraining, or nutritional assistance to get you through until you find a job again.
3. IRAs and Other Benefits
Do be aware, however, that your unemployment benefits may not last that long. According to Investopedia, unemployment benefits will only cover you for 13 to 26 weeks at the most. Once you run out of money, you’re going to have to find another source of income until you can get employed. U.S. News and World Report suggests that those who have an IRA and who can borrow from it should consider doing so.
Final Thoughts on Surviving a Financial Emergency
Do note that even if you can borrow from an IRA or a money market fund, it may take some time to pull that kind of money from your account. You may have a waiting period. If that turns out to be the case, you do still have a couple of options: Some other tips for surviving a financial emergency include taking out a car title loan to get you through, until your unemployment or IRA money can kick in; borrowing from family or friends; or selling off stuff you don’t need.
And all of that said, the best defense you have against a financial emergency is to be prepared for one. That means putting money away so that you have an emergency fund of at least $1,000. You also want to put away six months’ worth of income. To accomplish these two fundamental goals, you need to get into the habit of saving a bit of money from every paycheck that you you receive until both of these accounts are fully funded. Doing this will help you sidestep many of the financial emergencies that come your way.