No matter how well we think we are prepared, you can pretty much guarantee something will happen at the worst possible time that will cost you a lot of money.
Car breaking down before Christmas. Washer blowing up when your kid is sick. Boiler breaks in the middle of the winter. Those unexpected expenses can really tip you over, especially if you haven’t budgeted for them.
In this article, we share a few tips that may make preparing to deal with those emergencies and costs just a little bit easier.
1. Have a credit card purely for emergencies
While a credit card can easily lead to spiraling debt if not used and managed carefully, they can be handy in the event of an emergency.
It is essential to make sure you have the funds to pay it off if and when necessary to avoid getting further into debt, and only to be used when no other options are available.
Before you take one out, have a look at cardguru to make sure you are getting one that is right for you.
2. Take out insurance and extended warranties on large purchases
When you make an expensive purchase – a car, or large household appliances, if you are financially able to at the time, take out the most comprehensive and longest lasting insurance or warranty.
You may never need it, and it may cost a little more in the long run, but when it stops working or breaks and you have no money available at that time to fix it or replace it, it will be a godsend.
It is also worth looking into making these purchases on a credit card, as many credit card companies offer warranties up to twice as long as a manufacturer one.
3. Make room in your budget
If your budget allows, set aside a small amount of money every month to go into an emergency fund.
Whether it’s $10 a month or $100, put away what you can. If and when you do have to use it, make sure that you replace it as soon as you can.
If you are already saving money for something and don’t have the room in your budget to save even more, in the event of an emergency, you may want to borrow from that. It’s not ideal, but it may be better than going into debt if you have exhausted other options or you can’t get credit.
Again, make sure that you replace what you take out as soon as possible.
4. Withdraw from some investments
If you have any money invested in a mutual fund or money market and it isn’t in a tax-advantaged account, you can sell some of your investments to cover the expense.
Taking money from certain investments such as an IRA is not recommended as you may have to pay a large penalty to withdraw from those accounts before you retire, but for certain expenses, such as medical ones, this fee can be waived.