3 Ways to Keep an Emergency from Busting Your Budget


Planning is an important part about getting things done in life and living a less stressful existence. One type of planning is, of course, financial planning. Financial planning is incredibly important to help every individual and family to meet their personal goals. When you budget you are able to get your bills paid on time, save money for short term goals (such as vacations or holiday spending), and safe for long-term things such as buying a car or house, paying college expenses, and moving comfortably into retirement. However, despite the best planning, sometimes emergencies arise that can derail your budget if you are not prepared for them.

Emergency Spending

Emergencies can be anything that causes you to spend money unexpectedly. From a sudden car repair to vet bills, damage to your home from a storm or getting laid off from your job, life simply happens sometimes. Often, these surprise expenditures can be upsetting, both financially and emotionally. But, if you prepare in advance even unexpected emergencies can be dealt with without completely derailing your entire budget. Here are three ways to be better prepared for emergencies or to better handle them, financially, when they arise:

  1. Use your personal savings.

When an emergency causes you to spend money beyond your budget try to manage it from your savings account or short term investments. Financial Guru Suze Orman recommends that you keep anywhere from 6 to 18 months’ worth of paychecks in a savings account in case an emergency arises. This amount may sound crazy, yet it is a good rule of thumb. If this is not possible then at least try this: think about what your most expensive potential home repair or car repair is and always keep at least that much money in a savings account. For example, if you live on a septic field then you might say that a new septic field is the most expensive potential output of cash at around $6,000; so you would want to always have at least $6,000 in the bank for this, or any other, emergency.

  1. Sell your structured settlements.

If an emergency hits and you do not have enough money in your savings account to handle it you might want to sell off your investments to get the money. You might have some cash in short term investments that are easily liquidated, such as a certificate of deposit (CD). Or, sell structured settlements payments, if you have them. This can be less expensive than other financing options such as cash advances on credit cards or payday loans. If you do choose to sell settlement payments, remember to only sell how many payments you must to meet your emergency needs.

  1. Always keep cash on hand.

As noted previously, there are many different types of emergencies, some costing more than others. While most of your money should be kept safely in the bank, you always want to keep some cash on hand for minor emergencies or in case there is a regional emergency that prevents you from accessing your money that is in the bank. How much you keep on hand depends upon you, it might be anywhere from a couple hundred dollars to a few thousand dollars. Keep this money safely tucked somewhere that a thief is unlikely to look because home invasions can and do happen. Avoid your dresser drawer, jewelry box, an unlocked safe, or anywhere in the master bedroom. Instead, try a locked safe, a box in your freezer, a fake book on your bookshelf, or a box inside a kitchen cabinet.