An emergency fund should be just that – for emergencies. Big or small, it’s impossible to predict every expense that will come your way, but having an emergency fund is a great way to ensure you are prepared, no matter what.
What exactly constitutes an emergency can be a bit of a grey area, so when it comes to using your emergency fund, be sure to ask yourself these 4 important questions first.
Is it an unexpected cost?
A last minute trip with your friends or a bathroom remodel do not count as emergencies. While it can be tempting to use the money in your emergency fund towards lifestyle expenses, this should be avoided at all costs. Being that the purpose of an emergency fund is to financially protect you in a real emergency, getting into the habit of using these funds for other expenses will leave yourself vulnerable.
Instead, plan to use your emergency fund only when absolutely necessary. For things like vacations or home improvements, open a separate savings account to make contributions towards and work these goals into your budget.
Is it an absolutely necessary cost?
Was this truly a cost you didn’t see coming, or was it something you avoided saving for? Holiday shopping does not count! New school supplies for your kids do not count! Taxes do not count! These are all expenses that occur annually and should be accounted for in your budget. You’ll thank yourself when a real emergency comes your way and you have the means to prepare for it.
Is it an urgent cost?
If you can afford to wait in order to give yourself a bit of time to save up for this cost, then consider doing so. After using your emergency funds, it will take some time to rebuild them, and you don’t want to leave yourself stranded if an even more urgent expense were to come up before you had a chance to beef your emergency fund back up. Depending on the type of expense, you may be able to negotiate payment terms rather than having to pay entirely upfront, so it’s always worth asking this question.
Can I find another way to pay for it?
Before you rush to withdraw all your funds, take a deep breath and consider whether this is the best decision financially. There may be other means of paying for your emergency that have little or minimal consequences. For example, there are credit cards that are specifically designed for veterinary and medical expenses and offer 6, 12, or 18 month no-interest periods, allowing you some time to pay off your expense rather than draining your emergency fund. Whatever you decide, just make sure you’ve allowed yourself a few minutes to consider whether this is in fact the best decision in your scenario.
Life will always be full of surprises – whether it’s a sick dog, a broken down car, a ripped pool liner, or refrigerator that’s seen better days – an emergency fund will help you bounce back in no time, rather than setting you back in piles of credit card debt. If you have to dip into your emergency fund at some point, don’t fret! That’s what it’s there for, and as long as you’ve asked yourself the above questions first, you’ll know you’re making the most responsible financial decision. Just be sure to continue making contributions towards your emergency fund so you’ll be ready for the next curveball when it comes.
It isn't always easy to stay on top of your finances, especially when you have developed unhealthy spending habits over the years. However, as you begin to realize the many benefits of having healthy finances, it can become something you want to make a conscious effort to improve. When your finances are in a good place, you often have access to better opportunities whether it be a mortgage loan, greater credit line or business loan. On that note, here is how you can become an expert at managing your finances in case you need a few tips.
Learn to Use Technology
The good thing about managing finances in the technological age is that you don't have to do it alone. There are so many apps available that will help you pay bills on time and track your expenses. For instance, some apps force you to live within your actual income and tell you what to do when you need to balance your budget.
If you need an app that will help you get better at saving, then some will set aside your spare change for you. Also, don't be afraid to use more simple tools such as your smartphone calendar to set reminders about payments if you don't automate them.
Seek Legal Advice
Sometimes, being an expert at something means understanding that you can't possibly know it all. This is why you have professionals around you that can help fill in the gaps where you're lacking. Consider hiring a legal firm to help with any challenges that are beyond you. Lexington Law is a good firm as they could help remove negative items from your credit report. Read this Lexington Law Review (Our #1 Credit Repair Service of 2019) to find out more about how they could help improve your finances.
You can't do better than what you know when it comes to managing finances. You should, therefore, invest your time in learning more about finances and how to manage them. Think about what your goals for your finances are and what knowledge gaps you need to fill.
For example, if you want to invest in the stock market so that you can improve your net worth, then you may need to learn more about investing to do so successfully. To boost your knowledge, try reading articles on credible blogs that share finance information from professionals. Also, be weary of content from finance-driven companies as it could be biased.
Work on Growing Your Income
As a self-proclaimed finance guru, you know that the more sources of income that you have, the better. Work on increasing your streams of income so that you have more money to meet your targets whether it's to save for a property or put larger sums towards retirement. One way to do so would be by getting extra income by doing social media marketing for businesses or creating tutorials on YouTube. If you own a property, renting out rooms is a great way to make passive income.
Live Within Your Means
It can be difficult to live within your means when you live in a society that is always presenting you with things to buy. However, being more conscious about the things that you purchase could help you realize that most are wants rather than needs. To live within your means, always take time to think about a purchase as opposed to impulse spending. You should always get good at bargain hunting as many times you can find items of similar quality at a cheaper price.
Learn How to Manage Debt
Debt doesn't have to be a bad thing if you understand how it works and how to manage it. It can be a tool for credit building when you understand the fundamentals. For instance, if you take out a loan or credit card, always be mindful of your interest rates.
By paying the amount of money you borrowed back in full before the due date, you won't have to pay interest on what you borrowed. If you can't pay back in full, paying more than the minimum payment will ensure you incur less interest. For the most part, the secret to good debt management is never spending more than you can afford to pay back.
Managing finances is a life skill that can help improve your quality of life. By following the mentioned tips and taking your finances more seriously, you're more likely to master the art of healthy finances.