The entire world is still reeling from the economic slump brought on by COVID-19 so if you’re dealing with financial hardship, you’re not alone. It’s normal to be concerned and stressed about financial troubles, not just the ones you’re currently experiencing, but how you will cope in the future as well. With patience and planning, you can move past the emergency and gain some certainty about your ability to respond to what comes next.
There are different ways of dealing with financial emergencies, depending on your situation and needs. It’s important to take a breath before making a financial decision if you are feeling emotional. You need to take stock of your expenses and available assets, especially if you have savings or investments you can tap into to help you get back on your feet.
Boosting your financial literacy and adopting a wealth mindset can give you financial empowerment and help you prepare more effectively for financial emergencies in the future.
5 ways to deal with financial emergencies
While you can’t predict or control emergencies to come, there are several steps you can take that will allow you to manage your finances. It’s important to remember that a financial emergency is only a temporary situation. Once you’ve made the steps to address it, it’s important to resume your journey toward achieving your financial goals, and not lose sight of your original destination.
Here are five ways you can handle financial emergencies and get ahead:
1. Evaluate the situation
It’s understandable if you feel anxious or if you’re panicking. It can be challenging to stay calm when you’re playing into worst-case scenarios. When the situation in your head gets larger than the real-life issue, it can lead to emotion-fueled decisions or paralysis that can cause you to make much bigger mistakes that have long-term consequences.
Give yourself a moment and take a few deep breaths, once the anxiety and panic recede (and they will), you can evaluate your financial emergency and pinpoint the heart of the issue. Go deeper than just not having enough funds – did you leave small repairs too long so they become big issues? Did you fail to put aside money into an emergency savings fund? Did you fail to take out home and contents or medical insurance?
Understanding what caused the situation will help you make corrections that will prevent the situation from happening again.
Some of the most common financial emergencies include:
- Health and medical expenses
- Sudden income loss
- A drastic increase in the cost of living
- Home repairs
- Unexpectedly high tax bills
Identifying how you got into the situation – while being objective – this isn’t a beat-up session – will give you a better idea of how to address it. For instance, putting aside dedicated savings every pay, making home repairs as soon as small issues come up and looking for smart ways to access additional income if you run into future trouble.
Your plan of attack needs to address the root of the problem or it’ll just be putting a Band-Aid on a wound that’s bound to open again in the future.
2. Prioritise your necessities
Weighing up your needs and wants should be a daily activity, not just a recovery plan. Rather than waiting for a crisis to hit, draw up a list of expenses now and identify which are necessities and which are luxuries. As well as helping you allocate your spending and stay within budget, it will also be your go-to when you need to tighten your belt, so you can stop automatic payments quickly before the bills add up, at least until the crisis is over.
It can be surprising how quickly monthly subscriptions can add up. Hitting pause when you need to can make a big difference to how fast you recover financially. A short-term cutback gives you the money needed to either build or replenish your emergency fund and you can easily renew your subscriptions once you’re financially fit.
3. Build an emergency fund
If you lose access to your income you may have access to a month or two worth of savings while you get back on your feet, but this won’t keep you afloat for the long term.
It’s important to build up a long-term emergency fund, which is money set aside to pay for large, unexpected expenses, such as unforeseen medical bills, major car repairs or unemployment. How much you should save for an emergency fund will depend on your financial situation, but ideally, you need at least three to six months’ worth of living expenses so that you have money for your necessities.
An emergency fund serves as a financial buffer that means you don’t have to rely on credit cards or high-interest loans when you’re experiencing a financial crisis. An emergency fund can be incredibly helpful if you have debt because it ensures that you avoid borrowing more.
A good rule of thumb is to use a separate bank account for your emergency fund from the account you use for your daily expenses so that you’re not tempted to dip into it. Choosing a high-yield savings account also ensures that your money earns interest while allowing you to quickly access your cash when you need it.
4. Get financial support
If your financial emergency is an immediate expense that you can’t cover with your current funds you may need to consider getting a loan, either from a reputable institution or from trusted relatives.
Getting a third-party loan can be as easy as an online application, depending on your credit score, just make sure you do your research to avoid high-interest, payday-type of loans, which can start a vicious cycle of debt that can be difficult to get out of.
If all else fails, then it may be time to lean on your friends and family and ask for their help.
Borrowing from friends and family can put a strain on the relationship, so treat this help with respect and be sure to pay back what you owe as soon as possible.
5. Liquidate a small portion of your investments
Your investment portfolio can also be a potential funding source during an emergency. Many investments allow you to take a bit of the principal to help you get back on your feet.
A partial withdrawal from your life insurance policy, which would be taken from the premiums you’ve paid, is one option you can consider. Generally, no interest is paid on the withdrawal, though it’s important to consult with your broker or financial advisor to make sure.
If you have invested in assets, like gold, you will be receiving a return on the equity, however, if the current market isn’t enough to cover your financial emergency, you can consider liquidating some of your investment, which is possible for many assets including stocks and gold.
Adding gold investments to your portfolio is a good way to inflation-proof your money, reducing your financial risks and helping you get back on track.
The value of gold is independent of the equity market and it generally runs counter to current trends and events, such as inflation or plummeting stock markets. That means when times are likely to be roughest for you financially, your gold investments can be holding strong and maintaining value.
Whatever you take out of your investment portfolio or your insurance policy will need to be replaced, or even doubled, when you’re financially stable so it’s important to track and record how much money you move so you can reinvest with the same strength later on.
Financial emergencies can come in different forms. It’s important to have a plan in place so that unexpected financial issues don’t completely consume your funds, investments or savings. Assessing what kind of financial emergency you’re dealing with can help you identify short-term solutions you can use while you develop a more sustainable plan to recover. Cutting back on luxuries and liquidating a small portion of your investments are steps you can take to rapidly overcome the financial situation you’re facing and get back to your long-term goals.
The best way to deal with financial emergencies is by preparing for them beforehand and staying calm when they arrive. If you are ready to start your golden journey, download our app to see how flexible and liquid digital gold can be for your financial stability.