Financial emergencies are inevitable. They may strike even those with above-average incomes and well-planned budgets. Although financial emergencies are something that you can’t expect or prevent, you can still plan for them. Let’s contrast the difference between a financial emergency and a non-emergency and find out how you can handle them.
What’s The Difference Between Financial Emergencies and Non-Emergencies?
A financial emergency is an unexpected expense that can destabilize your financial situation or result in other serious consequences if you don’t resolve it quickly. Commonly, financial emergencies affect the most important areas of your daily life. They are often related to health, home, family, work, or moving. Financial emergencies should be covered as soon as possible. They always require well-thought-out and coordinated actions.
Non-emergencies are non-essential living expenses that won’t affect your financial position much, even if you don’t deal with them immediately. For example, a wedding celebration or a family vacation are non-emergencies that you can easily do without.
8 Most Common Financial Emergency Examples
An unexpected financial emergency is easier to be ready for when you know your enemy in person. Here are the most common types of financial emergencies.
1. Medical Emergencies
Healthcare in America often comes with impressive medical bills. Outstanding medical debt in the country was at least $140 billion in 2021. These statistics show that covering a medical emergency without additional assistance can be a huge problem for many Americans. Additionally, medical costs are named the main reason why people withdraw money from their retirement savings accounts.
Even if you have a health insurance policy, facing out-of-pocket medical expenses is almost inevitable. If you face a major financial emergency, your medical expenses will accumulate, leaving you with a huge debt that you can’t afford. If your savings account balance is low, you often have no choice but to go into debt to cover medical care costs.
2. Divorce
When you and your partner just get married, divorce is the less likely thing that you think about. But life is life. Statistics show that nearly 50% of all marriages in America end in divorce or separation. These numbers are not meant to scare you, but they can be an excuse to plan for such an outcome. Being pragmatic often helps save money in situations like this.
The most general divorce-related expenses include hiring attorneys and dividing assets. Additionally, this can result in significant changes in your regular lifestyle and usual financial position. As with any other emergency, preparation is the key. It will help you go through the whole process with minimum possible financial damage.
3. Car Breakdowns
Whether your car breaks because some part of the vehicle is out of order or due to a natural disaster, it’s a situation that often needs a quick fix. Ignoring the problem may cause it to grow bigger. Also, keep in mind that driving a defective vehicle is not only prohibited but also unsafe. This can cost you your life and, at best, lead to more serious car breakdowns.
Car repairs are often a costly expense category. The exact price depends on the nature of the breakdown. For example, the most common repair in 2021, which was replacing the catalytic converter, had an average cost of $1,355.
4. Sudden Unemployment
An unexpected job loss often seems like the end of the world, especially if you’re the only one who works in your family. But even if your spouse has a steady source of income, sudden unemployment still changes your regular lifestyle and makes your financial problems snowball.
Unfortunately, most people are not prepared for such situations. This happens because they are living from hand to mouth and don’t have spare money to create a high-enough emergency fund.
5. A Death in The Family
When someone in your family passes away, it’s always both emotional and financial devastation. All funeral- and burial-related expenses are exorbitant. Caskets, embalming, or cremation may cost thousands of dollars. Plus, it can add more financial responsibilities to you. For example, if it’s your spouse who passed away, you become the one who must pay the mortgage, cover bills, and save money for your children’s future college education.
6. Unexpected Move
You may think that it will never happen to you, but there are various reasons for the unplanned move. Most people are forced to relocate due to getting a new job or going through divorce or foreclosure. Whatever your reason is, moves are always expensive and tiresome. You have to think about tons of things, from hiring a moving crew to finding money for your rental down payment or buying equipment.
7. Unplanned Home Repairs
Household repairs are a common reason why people dip into their savings. If you’re a homeowner, you probably know that things can go wrong at the most inopportune moment. Your house may require roof repairs or replacement, water damage correction, fixing foundation problems, and other high-cost activities to keep it in good condition. Some emergencies can also be a safety issue, so you need to be prepared to fix them on the spot.
8. Pet Emergencies
As nearly 70% of American households keep pets, this expense category is quite common for most people. Even if you think that your pet expenses are under control, health issues can arise all of a sudden. Managing them can be quite costly, especially if you don’t have pet insurance. Are you ready to pay for an emergency surgery, broken bone, or dental care? All these costs may put a dent in your wallet if you don’t prepare for them in advance.
How You Can Handle a Financial Emergency
Although you can’t prevent a financial emergency, there’s always a way to handle them. Forewarned is forearmed. Below are practical ways to get prepared for an emergency.
Create an Emergency Fund
The best way to feel confident when an unplanned expense arises is to start preparing for it in advance. When you have emergency savings, you can minimize stress while getting through tough times. Even if your savings will be lower than the needed amount, it’s still better than nothing. Start small instead of going around in a circle. Next time you face financial emergencies, you will see the difference.
One of the greatest ways to start is to open an emergency savings account. This will help you keep money away so as not to spend it unnecessarily. Contact your bank and ask about available options. Pay attention to withdrawal terms and fees that a bank may apply. Then, try to set aside a certain amount each month. It may seem that you don’t have spare money to save, but in most cases, there are expenses that you can cut off to free up some money. Even minor changes in your spending habits can give great results over some time.
Take Preventive Measures
Some unexpected expenses can be postponed or minimized by taking simple preventive steps. Do regular check-ups, buy a health insurance policy for you and your pet, keep track of your house’s condition, and follow the recommendations for the operation and maintenance of your car. All these steps can help you avoid some future financial emergencies. Keep in mind that some costly repairs or medical bills will never arise if you are one step ahead of them.
What’s The Best Way to Pay for Unplanned Expenses?
If you’re one-on-one with your financial emergencies and need more money to overcome them, here are the best options to turn to.
Personal Loans
A personal loan can provide you with enough money to cover the most common financial emergencies. Personal loans typically come with amounts of up to $50,000, with some options offering up to $100,000. The repayment is made over 1 to 5 years in equal monthly installments. To get a personal loan, you need to demonstrate a strong credit history and have a high-enough income for the requested amount.
Online Loans
Online loans are innovative loans that are popular with bad credit borrowers. However, people with credit issues are not the only ones who use them. These financial options have a few more advantages over conventional loans. First, they are much faster to get. It typically takes you 24 business hours to access the funds in your checking account. Also, they can be obtained online from anywhere. You can apply without leaving your house and changing your schedule. Finally, they don’t affect your credit score.
Online lenders offer a wide range of options that are available with any credit. You can get a guaranteed $300 loan with bad credit or obtain an instant $5,000 loan with no credit check. The flip side of the coin is their cost. Online loans often come with higher than the national average interest rates.
Credit Card Cash Advances
If you have a valid credit card, you can withdraw money from its balance within the limits set by an issuer. Such a cash advance is a lightning-fast way to get the needed funds because you don’t need to apply for it and wait for a loan decision from a lender. You can simply withdraw cash in a branch or ATM. However, a credit card cash advance can be expensive. It doesn’t have any interest-free promotional period. Interest rates are higher than on your regular credit card purchases and start accruing immediately.
Cash Advance Apps
Cash advance apps can provide you with fast short-term loans in a few clicks. You need to install one on your smartphone and sometimes pass a registration to get started. Then, fill out a simple loan request form to pre-qualify. A lender will check your details and email you back with a response. If approved, the funds will be deposited to your bank account shortly after you e-sign a loan agreement. Cash advance apps will suit you if you need a small amount for a short period. Some of them cap their loans at $300 or $1,000. Also, loans from cash apps can be expensive.
Bottom Line
The most common financial emergencies always affect the most important areas of your daily life. From medical emergencies to unplanned home repairs, the best way to handle them is to create an emergency fund and take some preventive steps to minimize the risk of their occurrence. When you plan for unexpected expenses, you can avoid financial stress at the moment they arise.
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