What is a Financial Emergency?
In a previous post, I talked about how to save for periodic expenses like car/home repairs, vehicle tabs, clothes, shoes, and more. These are things you KNOW you're going to have to pay for...it's just a matter of when. Besides a periodic savings account, you should also have money set aside in case of a financial emergency, which is something unplanned and unexpected.
So what is a financial emergency?
- A medical, dental, or pet-related emergency. Regular medical expenses like getting sick here and there or other visits that aren't completely covered by insurance should be planned for as much as possible. But arms break, teeth crack, and kids and pets...well, are kids and pets...and random illnesses/injuries happen. I personally would pay for emergency surgery to save my dogs as long as their quality of life would remain the same afterward.
- Job loss or extended leave. If you lose your job or need to take off work more than a few days, it likely will reduce your income significantly either temporarily or permanently.
- Death of a family member or close friend. We don't like to think about this happening to our loved ones, but it's reality. You may need to make a last minute trip across the state or even the country to attend the funeral. And depending where it is, plane tickets and/or hotel rooms may not be cheap.
- Emergency home expenses. This isn't meant to cover everything that you have to repair or replace in your home. Hopefully you're keeping tabs on appliances, carpeting, etc. and setting aside money into periodic savings. An emergency expense in your home would be something like the toilet overflowing or your heater stops working when it's -20 and you have to call someone to fix it.
- To avoid insufficient funds/fees. If you find yourself falling short one month because you forgot about those $185 vehicle tabs and you are worried about an over-draft on your checking account now, this might be the time to tap into emergency savings to avoid doing more damage and getting charged fees. Try to avoid this from happening again by figuring out what other expenses you didn't plan for and setting aside money into periodic savings.
Keep in mind that your idea of a financial emergency might be slightly different. But the main point is that an emergency is something you need to plan ahead for in savings because it's going to be unexpected...as well as expensive. So if you already have something started in emergency savings, great! Now is the time to keep building it up; a good goal is to have at least 3 months' worth of living expenses in emergency savings.
If you haven't begun saving, don't panic; just get started as soon as possible. Try to save at least a little bit every pay period or every month and then don't touch that money unless you're using it for - you guessed it - an emergency. :)
If you're having trouble saving because of credit card debt, LSS Financial Counseling can help. Go to our website to get started online, or call us at 888.577.2227 for your free and confidential session with an experienced financial counselor. We'll create a plan with you to conquer your debt FOR GOOD.
Author Elaina Johannessen is a Program Director with LSS Financial Counseling.