Most working adults aren’t ready for a financial emergency. Are you?
When it comes to your finances, it’s smart to expect the unexpected. You never know when a car will break down, when your kid will sprain an ankle, or when your air conditioning will go out in the middle of the summer heat. It’s important to make sure you are financially prepared for emergencies, especially in today’s world.
Most people can't handle unexpected expenses.
Only 28% of those between the ages of 25 and 40 are prepared for unexpected costs, according to a survey by the AgingWell Hub at Georgetown University’s Business for Impact.
That means that a significant majority of working adults are living paycheck-to-paycheck, just hoping no pressing need or emergency arises. This is a huge source of stress and anxiety.
Preparing brings peace of mind. In many cases, it just requires practicing better money management. But navigating emergencies can still be difficult, no matter how disciplined you are with your cash. We’re here to make sure you know how to prepare for the next unexpected event and don’t have to turn to quick fixes with long-term consequences, like plunging yourself into credit card debt.
Here are our top tips on preparing for financial emergencies:
1. Prioritize savings
There’s a lot of wisdom in the concept of “paying yourself first. When saving is an afterthought, you end up overspending. Figure out how much you want to save, what essential costs you have, and build your budget around those two things. Put your savings in a separate account, so it’s out of your main account like it would be when paying any other bill.
2. Build an emergency fund
One of your savings goals should be building up an emergency fund. This is money you can draw on when those unexpected life events hit—a flat tire, a parking ticket, a broken tooth. It should be easily accessible, meaning a savings account is a better option than long-term investments like CDs. Most financial advisors suggest saving at least three months' worth of living expenses. If you lose your job, you’ll be able to support yourself as you work towards something new.
3. Know where you can access credit
Credit should always be the last option, turned to only after an emergency fund has been exhausted and you’ve tried everything else. But it is an option you may have to use, and it’s best to be prepared. Building your credit score now can benefit you later.
Getting a credit card and using it responsibly to pay for regular expenses can help you build your credit score. Just make sure to always pay it back immediately and use it for select purposes, like gas or grocery trips. Having a history of paying loaned money back on time shows you are responsible and will make you eligible for better rates when you need them.
4. Make a plan for cutting costs
There are so many places you can save if you start looking. Streaming subscriptions, regularly eating out, and ordering daily coffees are all small expenses that can add up without you noticing. Every so often, it’s a good idea to take a look at your spending habits and assess what items can be cut. If not now, in the future, should your income drop. Creating this alternate budget saves you stress when the emergency hits and will help you move forward with a clear head.
5.Invest in yourself
While the other tips on this list aim to save you from emergencies when they strike, this one aims to prevent them. Specifically, it provides you a safety net when the worst financial event happens—losing your job.
Investing in yourself allows you to pivot when plans fall through. It involves building your resume, continuing to educate yourself, and constantly acquiring new skills that make you an attractive asset to potential employers. Doing this could land you a new position or even a promotion at your current job.
Another way to invest in yourself is to develop multiple income streams. Starting your own small business or side hustle provides more security, adding a source of income you can lean on if your main one is lost.