Internationally, the United States may be viewed as the land of wealth, opulence, and luxury, but for millions of Americans, the reality is much bleaker.
Research shows that 78 percent of full-time workers are living paycheck to paycheck, while 56 percent have overwhelming debt. Less than half of American workers are able to save more than $100 per month, and just a small percentage of people have more than $1,000 in cash to their names.
When you’re living paycheck to paycheck, you’re essentially in chronic survival mode. All it takes is one emergency – a hospital visit, a car repair bill, or a temporary loss of a job – and you suddenly find yourself in a tight spot. And once you’re in this spot, it can feel impossible to escape.
How to Handle a Financial Emergency
You might not be financially prepared for an unexpected emergency, but you can develop a plan of attack to help you survive. Here are a few suggestions:
- Strip Away Unnecessary Expenses
Most people have areas of their life where they waste money. Stripping away these unnecessary expenses may be able to create some breathing room in your budget. Examples of unnecessary expenses include:
- Expensive cable contracts
- Eating out at restaurants
- Excessive online shopping
- Vacations and getaways
After a few weeks or months of eliminating these expenses, you may find that it’s actually pretty easy to come up with the money you need.
- Use a Short Term Installment Loan
Whether it’s an urgent car repair or unexpected medical bill, a short-term installment loan can give you access to a few hundred or thousand dollars of cash that can be paid back with a fixed number of regular, equal payments. This is often much cheaper than letting an expensive, high-interest bill continue to go unpaid.
- Negotiate Your Expenses
Did you know that many bills can be negotiated? This is especially true when it comes to something like an expensive medical bill. When a hospital realizes that you won’t be able to make the full payment, they’ll often work with you on more flexible terms that help them get paid faster.
- Try Crowdfunding
Crowdfunding platforms like GoFundMe have risen to prominence over the past few years and are often a viable option when you have a sudden emergency crop up in your life. They allow you to raise money from friends, family members, and other good Samaritans who want to contribute to your cause.
- Sell Something
You might not have cash on hand to fund an expense, but do you have other items that could be sold or liquidated to provide cash? Whether it’s something big like a house or car, or something smaller like electronics or jewelry, you may be surprised by how much “money” you’re sitting on.
- Find a Part-Time Side Gig
We live in an economy where it’s easier than ever to pick up a part-time job and increase your income. Whether it’s driving for Uber, delivering pizza, mowing lawns, or selling homemade goods online, an extra couple hundred dollars a week could change your outlook. You may even find these opportunities so easy and lucrative that you continue to do them after you’ve paid off your emergency expenses.
Build Up an Emergency Fund
Nobody foresees an unexpected expense occurring – hence the name – but there’s something freeing about knowing that you’re able to pay for it. To prepare for future financial emergencies, you should begin building up an emergency fund.
An emergency fund is simply a cash savings account that contains three to six months of expenses. (If your monthly expenses are $3,000, this would be $9,000 to $18,000.) You don’t touch this money unless there’s an emergency. And once you tap the fund for money, you refill it as soon as possible.
The best way to fill up your emergency fund is to create a detailed budget that tracks your monthly income and expenses. Find wasted money and reallocate it towards savings. It may take you a year or more to fully fund it, but start today. Even if you never need to use it, you’ll enjoy the peace of mind that comes with knowing it’s there.