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Emergencies happen all the time. Dave Ramsey commonly says “it’s not if they will happen, it’s when”. We know that we have to prepare for unexpected events to come up and rear their ugly head at some point.
How do you handle emergencies when they happen?
There are people out there that use a credit card as their emergency fund. Heck, for a little while we have done this as we build up ours. I don’t recommend going this route as common sense would ask, “why are you adding more debt during an emergency”?
As we build our emergency fund, we are relying on the credit card less and less. In fact, we’re looking forward to actually cutting the card up and closing the account once we are fully funded (which might happen by the end of this month).
Other people borrow from friends or take out a home equity loan or many other things that leverage debt vehicles. One of the big things I’ve learned from going through emergencies and paying off debt is that you can’t borrow your way out of it. We have had to get creative a time or two in order to make sure that our emergency would be able to be cash flowed, if possible.
Here are a few ideas that you can use when facing an emergency and how you can save up to cash flow it rather than take out debt to cover it:
Cut Any Expenses You Can
Are there any extras in your budget? Even if they don’t seem like they would be fun to cut for the time being, cutting back expenses for a period of time can add up quickly to help you get through an emergency situation so that you can cash flow the problem and get back on track.
Things like: cable TV, internet, extra sinking funds that you contribute to, investments (if needed), clothing money, blow money, eating out money, vacation money, can add up rather quickly to eat up a lot of our discretionary money if we aren’t careful.
The only reason I mentioned investments is if you are going through something that you are going to be fighting for a longer time period and will need that money over the long haul. You wouldn’t invest on borrowed money, so the same concept applies here.
Bring Down Bills In A Meaningful Way
When facing emergencies and trying to cut back your expenses, one of the best things you will find is how much you really miss or don’t miss something. If you are able to cut that TV package down to bare bones and are able to shave off $50+ or so a month, see how much you miss it. You may end up just leaving it out for the long term instead so that you can focus on your financial goals for a set period of time.
Look at all your bills in this way. What can you get by with. If you want some luxuries, that’s not a problem. Just don’t let your luxuries hinder your ability to save, give, and build wealth over the long term.
Pay Off Smaller Debts To Increase Cash Flow
By paying off little pesky debts that might be looming here or there, you can really increase your monthly cash flow. One of the best ways to do this is by creating a budget and using any extra money to create a debt snowball. At one point when my wife and I were paying down debt, the minimum payments for all of our debt was around $750 a month. Add these up in your life and see what you can get rid of to increase the amount of money you can put back into your pocket or put towards your financial plan. You will be surprised at how much these little things add up to a big number overall.
Build an Emergency Fund
After you are through an emergency, you should start planning for your next one. Save up a small emergency fund of about $1,000 if you are still repaying debt so that you have a pile of cash to fight off the next one with. By creating a foundation, you will be setting yourself up for success and allow you to continue your progress without having to go into crisis mode every time something unexpected comes up. Of course, after you finish paying off all your debt except your house, you will want to go back and build up your emergency fund to three to six months of expenses to further protect and secure yourself from catastrophe.
Try To Stay Calm
Above all else, try to stay calm when these things happen. By keeping calm, you will make better decisions and will be able to think through the situation better. I remember getting worked up over a small emergency that we were having where our car needed about $500 worth of repairs. We only had about $300 in our car repair fund, but I knew that I would be able to cash flow it because I had an emergency fund to pull from to cover the expenses. We were able to write the check, fix the car and get back to work quickly. I know that had we not had the emergency fund and sinking funds in place, we would have been in a panic. There’s a great sense of peace and security that comes along when you build margin and have an armory to protect yourself with. I would want everyone to have that same peace!
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