Facing a Financial Emergency – Now what?
5 Steps to get you out of a Financial Emergency
For most of us it might be inevitable to find ourselves in a financial emergency at some stage of our life. Any unexpected situation can easily lead to you feeling both blindsided and vulnerable – from a job loss to any unplanned expense such as medical, car/home repairs, or even a change in your general financial situation.
The reality remains that during these emergencies there is still a financial obligation in terms of your basic needs and your creditors.
Here are a few steps you can take to manage the crisis while reducing negative impacts:
- Evaluate: Evaluating the situation will determine the root cause of the financial emergency. This allows you to better plan for future financial crises instead of implementing a quick fix (a band-aid for a long-term problem)
- Prioritise: During a financial emergency it is so important to prioritise your expenses especially if you find yourself in a position where only some expenses can be covered. Find the balance between importance and inconvenience. Once you have determined which of your expenses are most important, you can start to cut back on others (i.e., subscriptions, internet, and any other luxury items). Maintaining record of your monthly budget is essential to keep track of your financial situation – this will also enable you to better plan your future financial obligations and make better decisions in terms of affordability.
- Negotiate: During any financial emergency it is imperative that you contact any credit provider and re-negotiate on repayment plans. This needs to happen before you reach a delinquent state (non-paying state) enabling you to get as much help in terms of re-organising your financial obligations
- Review: Review your credit obligations and try and settle your smaller balances or decrease the high interest accounts first. During this you should avoid taking on more debt to cover debt – this will have a snowball effect on your financial situation in future.
- Plan: Once you have overcome the current crisis it is essential that you take the required steps to minimise the potential impact of risks in future. You need to start an emergency fund. In this way unexpected expenses won’t force you to make difficult choices about your basic needs (i.e. start by using your bonus, cash back rewards or tax refunds to kick-start your savings kitty). You might also want to consider insurance policies or Gap covers to enable you to manage any bond, vehicle or credit repayments in future should you face another financial crisis.
Life is very unpredictable – but having a plan before any emergency strikes will take a lot of unnecessary weight off your shoulders. You need to understand your expenses and limits and have a few back-ups in order to cover basic monthly expenses.
Basic Rules: Be prepared and be cautious. With the right preparation you can easily turn any possible financial disaster into a temporary setback.
For more information: Charlene Erasmus – CharleneE@hpd.co.za