When you’re living paycheck to paycheck, you know that any one thing can be the downfall of your finances. Many people throughout the country are living one or two weeks ahead of all their bills. You’re paying your obligations with the money from a paycheck, and then two weeks later, you’re doing the same thing all over again. As long as you’re regularly working, this isn’t much of a problem. You just have to make sure you are, in fact, working regularly. If anything comes up that might disrupt that flow of work, you could be in some serious trouble. Also, you could run into trouble if you are hit with unexpected expenses. Unexpected shortfalls and unexpected expenses are the two most common ways that people end up falling on hard financial times. So often these things are out of your control, but you’re still subjected to them anyway. For example, in the first decade of the 21st-century, economies around the world took serious declines in productivity. You probably felt the effects of that decline, but you were still held responsible for all of the same debts. That’s the thing about debts—no matter what happens to your finances, your debts stay the same.
Unexpected Budget Shortfalls
Living paycheck to paycheck requires a budget that is tightly followed. If you’re making £1000 a month, and your expenses total £900 a month, you have £100 of extra money. In a budget, that’s typically called your discretionary fund. That’s the money you can spend or save according to your discretion. It’s probably in your best interest to save it in case something happens in the future, but that’s not always possible. To continue the example, imagine that you have an extra £100 at the end of each month. Then imagine that you experience an unexpected budget shortfall. That can come in many different forms. If you get laid off from your job, are forced to take a pay cut, fall ill, or get injured, then you can’t go to work. If you get injured and can’t go to work for a week, you might lose £200 worth of pay that month. That means you now only have £800 to cover £900 worth of expenses. That’s a £100 budget shortfall. How do you handle that?
If you expect to get back on your feet and start making money soon, then you can just try to push back some of your expenses for another month. Since you normally have a £100 budget surplus, you should be able to pay off the shortfall in a month if nothing else unexpected happens. That’s the ideal scenario, but that’s rarely the case. The more usual case is your shortfall is greater than your usual surplus, or you end up out of work for longer than you’d planned. If you end up with a shortfall you can’t pay off, or you end up with expenses that are time-sensitive, you have fewer options that are available to you. Short-term loans are available to help you cover unexpected expenses and budget shortfalls.
These loans tend to have very quick turnaround times. For many companies, you can go from application to loan in under twenty-four hours. They tend to have fairly high-interest rates that accrue daily because so many people try to abuse the loans. If you’re using them for the right reasons, and if you’re sure you’ll be able to pay them off, you should have nothing to worry about. You should only borrow money this way if you’re experiencing a temporary budget shortage that you will be able to correct soon. These loans are perfect for people who were out of work for a week with the flu, but they plan to get back to work soon. You should only take out one of these if you’re planning to pay it off within a month’s time. It’s easy to get caught up in the interest rates and fall far behind.
They’re not only good for shortages in your budget, but they’re also good for unexpected expenses that you didn’t budget for.
Unexpected expenses are something that can happen to us all, no matter how careful we set out budget. To continue the previous example, if you normally have an extra £100, you could run into trouble if the clutch on your car fails. This can easily be a £500 or more problem. That’s a £400 difference in one month alone. There’s no way to plan for that kind of expense. If you’ve been saving 100% of your discretionary money for five months, then you should have enough money to cover the unexpected expense, but that means nothing unexpected has happened in five months, which is incredibly unlikely. If you have kids, you’ve probably had to pay field trip money, football club sign-up fees, holiday spending, or something else like that. Those expenses are so common that they’re almost expected. They fall into discretionary spending, but they are not quite unexpected.
True unexpected expenses are rare fees that you have no way to plan for, such as car trouble or medical care. If you get caught up in one of those expenses, it’s in your best interest to pay it quickly. If you live in a place beyond the normal tram lines, you probably have to drive to work. If you’re hit with car trouble, you won’t be able to drive to work; therefore, you can’t put off paying for it. You have to get back to work as quickly as possible, so you can pay off your car expenses as well as the other items in your budget. The longer you avoid paying to fix your car, the more you’ll sink into debt. Taking out a loan is the fastest way to keep from going into even greater debt. That’s the thing about unexpected expenses—they have a way of spreading beyond your control. You have to get on top of them as quickly as possible to avoid a truly catastrophic financial situation.