Can You Handle a $500 Emergency?
A financial emergency can throw off anyone's budget, but when you are living from paycheck to paycheck, you are in a position when any extra expense can knock your finances for a loop. This can make getting ahead very difficult. It can make going to the doctor or hospital or getting your car repaired a major crisis that can keep you up at night and stressed out. According to Bankrate.com only 37 percent of Americans have enough in savings to cover a $500 emergency. If you want to have true financial peace and stop worrying about finances, you need to set up a system that will take out of this situation and make it possible to cover your expenses without relying on credit card companies or other expensive loans.
How Much Money Can You Come Up With Without Using Credit?
A quick test to see how you are doing is to look at how much money you could come up without using a credit card in the next week. You can look at your savings account and consider the amount that you have available to you. You may also look at how much you can cut back in incidental spending in a week to see how quickly you can raise additional money to handle unexpected expenses. Once you have this number, you should consider how much that can actually pay for. Additionally, you may want to consider how much you have available on a credit card, because if you have maxed out that resource, you may be in an even more perilous situation when it comes to your finances.
Can You Pay for Emergencies?
It is important to know whether or not you have the ability to cover specific emergencies. Many medical emergencies can be partially covered by insurance, and the hospital or doctor may be willing to work out a payment plan for the rest. However, this means that you may have a hard time for several months as you work to pay off an old medical bill. Car and home emergencies are a different matter since most mechanics and repair services expect to be paid at the time of the expense. When you are in a situation that you need your car to get to work, but you cannot afford the cost of the repair, it can send you scrambling for money.
It is important to think ahead and start planning now so that you do not find yourself in this situation.
Use an Emergency Fund to Fix Your Problems
Your emergency fund is one of the best solutions to fix this issue. A well-funded emergency fund can stop you from using your credit cards in an emergency and give you the peace of mind you need in difficult situations. You should have between $1000 and one month’s income for your emergency fund until you are out of debt, and then you should work on building up a year’s worth of expenses. This will help you cover everything from car repair to being laid off from your job. You can start by putting aside just $100 a month or paycheck until you build your emergency fund.
If you are truly living from paycheck to paycheck, you may need to take on a second job or consider selling some items to find the money to put aside. If you just spend a lot of what you earn on entertainment costs or eating out, you may be surprised at how much you can save by cutting back on your spending. In this case, saving should come before paying off debt.
Ways to Save Money Fast
If you do not have an emergency fund, you should build one up as quickly as possible. You can do this by switching to a bare bones budget and stop all unnecessary spending. One way to save up money quickly is to stop eating out for a month. If you cook at home and pack a lunch for work, you can easily save up to $200 a month, depending on where you usually eat out. If you cut back on buying clothes or going to the movies for a month or two, you should be able to save up enough to start your emergency fund.
You may also want to consider selling things or taking on a part-time job to build up the cushion that you need to get by.