All of us inevitably face some sort of unexpected financial expense. The expense is overwhelming for some and can put one’s finances in turmoil. It could be a home repair, car repair, medical or dental bill, debts spiralling out of control, or something else. A recent study suggests that more than a third of adults in Canada have no way of covering an unexpected expense of $400 or more.
Here is how to manage unexpected financial expenses and get you through to a more stable time.
Create a Budget
Whenever you face unexpected financial expenses, create a budget. Focus on how you want to manage your money. Identify income and expenses, consider how well each expenditure is justified and whether you can cut back or adjust.
Reduce Your Expenses
To raise money for an expected financial expense, you have to find it. Reduce expenses. Even temporarily, such as a 3 to 6 month period, may be what you need to drum up the money to cover what you need to spend in an emergency.
Take On as Little Debt as You Can
You may have to take on debt to pay unexpected expenses. This is perfectly okay; however, take on as little of it as you can. Compare and contrast interest rates and terms between products, such as credit cards and personal loans, and alternate funding sources like payday loans.
Assess Current Debt
Assess your monthly debt payments as they are today. Look at how debt obligations impact cash flow. Try consolidating or refinancing debt to lower interest payments and the monthly amount owing.
Use Payday Loans Responsibly
For fast cash for an emergency, payday loans are easy to acquire and maybe your best bet if you have bad credit or other financial issues. Overusing any borrowing strategy can put you into a debt cycle that can be hard to kick. Use payday loans responsibly.
Apply for a Credit Card
Individuals with a strong credit rating may apply for a credit card. That works! It takes time to acquire the card; if you need the money now, it can take weeks to get one.
Talk to Your Bank or Credit Union
Let your financial institution know you have difficulty paying for an unexpected expense. They may offer financial products, such as a personal loan or line of credit, and they may be able to expedite the application process.
Negotiate Better Payment Terms
See if you can negotiate a payment plan with installations spread out over a longer term. See if you can pay less to reduce the amount owing in an emergency predicament. Talk to creditors and other stakeholders in your budget to see what you can recoup or retain.
Diversify Your Income
A loss or reduction of income can be tough. To minimize the risk of income going down, diversify your income sources. Obtain a part-time job, start a side hustle, or consider how you can build passive income streams.
Pull from an Emergency Fund
An emergency fund is a savings account that packs costs in 3-6 months. It protects you from unexpected expenses. If you don’t already have an emergency fund to tap into, start saving a little bit at a time to get there.
Sell Unused Items For Cash
Another way to get money relatively fast is to sell unused items, furniture, and assets for quick cash. Anything you have in valuable but unused storage can go to consignment shops or online marketplaces. This is a great chance to declutter as well.
Apply for Financial Relief
Financial relief may be available from the government, community assistance programs, charities, churches, utility companies, creditors, and financial institutions. Do online research, make phone calls, and see what help is available to pay the expense.
Ask for Money from Family and Friends
Borrowing from a family member or friend is common when you’re in a financial predicament. Just ensure you pay them back on time to avoid stressing the relationship.
Downsize to a Smaller Living Space
Pay less rent in a smaller living space. This can shave hundreds off your monthly budget and put this money back in your pocket. You can then invest this money towards all unexpected expenses.
Talk to a Financial Advisor
Suppose you have money that you can withdraw from investments or savings or make significant income; consider talking to a financial advisor. They can help you manage your money, assess your financial situation, and recommend financial products that support long-term wealth building.
