It happens to everyone at least once in their lifetime. Money is tight, and while you aren’t quite at the point of setting up a GoFundMe, you also don’t want to tap into the emergency fund. If you have no savings put back at all, perhaps this is a good time to ask friends or family for help to get back on your feet, or if that is not possible, taking out a small loan. For those that do have some savings put away, there are a few guidelines on what to do – and what not to do – if you are in a money emergency.
Do Define ‘Emergency’
Before you hit the savings, take a good, honest look at your luxuries. Do you really need as many cable channels as you have? Is your caffeine/alcohol/entertainment budget too high? Can you get a cheaper monthly plan on your cell bill? Do you really need Netflix or other subscription services? Eliminating several of these things right from the start can make a big difference in your monthly savings almost immediately. Do get rid of luxuries you’ve become accustomed to but don’t need. As soon as you are out of the money crunch, go back to enjoying simple pleasures again.
Don’t Invest Your Emergency Fund
Fundamentally, you should have at least two savings accounts set up. One is for savings (think new car, down payment on a house, vacation, etc.) and the other should be the “don’t-touch” savings. With that being said, the don’t-touch savings should never be invested or used in any other capacity other than a savings account. This is emergency money, not rainy day money. When you do your budget and deposit money into your accounts, add to it, but pretend like it doesn’t even exist.
Do Pay Yourself First
In other words, before the monthly bills are paid, deposit your savings money into your account. These should be long-standing goals that are met every month. If you hit a point when they are not being met, it’s time to examine your luxuries again, eliminating a few. Saving on a regular basis is much more important than daily luxuries. When an emergency comes, this is undeniably true.
High-Interest Loans or Cards
In a perfect world, we would be able to pay off the balances on our credit cards each month, and put extra money toward our loans. This isn’t always possible, but it is a good rule of thumb not to carry balances on loans and cards that have a high interest rate. If you can’t pay off your balances or get into a card that has a low interest rate, you might want to rethink having a credit card. Also, make more than the minimum payment on a monthly basis. Making the minimum payment is often mistaken as a tool to rebuild credit. This is not so. Carrying large balances can plunge you further into debt, and when a true emergency does come, you won’t be able to get credit. Some lenders offer higher interest rates but will provide short term emergency loans without a credit check like Lindgren Financial.
Do Make a Budget
Make a monthly budget that is reasonable enough to stick to. This budget should also include your savings accounts as monthly bills. Use apps wherever possible to help you stay on track and maintain your budget. Look for banks and cards that help you stay on track with savings goals as well.
Savings is the essential name of the game when it comes to what to do during a money emergency. This takes a lot of preparation and vigilance – but when hard times come, the emergency won’t seem so bad when you have a little nest egg to help you get back on your feet.