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what to do in a financial emergency when you need money fast

When it comes to money, many of us have budgets in place and compulsively check our bank accounts to make sure we have what we need to cover our monthly expenses. But what do you do when the unexpected happens?

According to a 2022 survey, more than half of Americans could not pay for a $1,000 unexpected expense. That means if any of them suffered a sudden financial emergency, they'd immediately enter panic mode.

In order to avoid that in your own life, we recommend having an emergency fund of at least $500 (more than $1000 would be spectacular). Here's why and how you can achieve this level of confidence in your finances.

What Is an Emergency Savings Fund? 

Everyone has different expenses, and everyone has different emergencies. For example, you may be able to cover a small car repair with the money in your checking account, or you may not have enough to make the payment. It's up to your discretion when to tap into your savings account to access your emergency money. Life circumstances will dictate when you need the money. Here are a few cases when you could use the emergency fund: 

  1. You or your spouse are laid off: Losing your job presents a bunch of problems. Covering your monthly living expenses will be one of your top concerns. You may worry about making your mortgage payment or having your electricity turned off. An emergency fund can help you through a rough patch and keep you from charging too much on your credit card, leading to longer-term debt. 
  2. You need immediate house repairs: A busted pipe or mold buildup demand your immediate attention. You need to get big problems like these fixed right away, so they don't turn into something even worse. You can use your emergency fund to pay for big and small home repairs. 
  3. Your car doesn't pass inspection: You have two choices when this happens, and both of them involve spending a large amount of money. The first option is to get the car fixed, no matter what the cost. The second option is to trade in the car and buy a new one. You will likely need money for a down payment, and you can take the necessary money from your emergency fund. 
  4. You have a serious medical matter: Health issues can arise at any time. Even someone without a family history of health issues can develop a serious illness or disease. Having the money to pay your bills can help make treatment less stressful.

You can estimate how much you need to save as you determine what situations may require you to dip into your emergency fund. Though you won't know the exact price of an emergency before it happens, you can research the average costs and start saving money to reach a minimum goal.

Emergency Fund vs. Savings

While a savings account is the best way to save your emergency fund, you'll want to set boundaries for your accounts. A best practice to create boundaries is by separating your emergency fund from your regular savings account. By having separate savings accounts, you can dedicate one to keep funds strictly used for emergencies. That way, you won't have to keep track of how much money you use from your regular savings account for emergency purposes. 

When you set a clear distinction between the two accounts, you can maintain your focus on saving money for unanticipated needs and future wants. Your emergency fund is still accessible when you need it, but you won't be as tempted to use it for everyday use. You can continue saving money instead of using it for other expenses.

If you want to prepare for a couple of emergency scenarios, you could save money using two separate emergency funds. One account could be a personal finance emergency fund, where you save money in case of a layoff or another individual financial situation. The other emergency fund could be for general emergencies, like an unexpected car issue, medical bills, house repairs, or more.

How Much Money Should Be in an Emergency Fund? 

An emergency fund should have at least several thousand dollars in it. Try to aim for four to six months' worth of living expenses in your emergency fund. It will take time and effort to save up this money, and you want enough that you can survive comfortably for a few months without any income. 

You can calculate the right amount for your emergency fund by budgeting. Determine your monthly budget, which covers all your regular expenses, such as: 

  • Rent or mortgage
  • Utilities like electricity, gas, or water
  • Internet
  • Sewer and garbage expenses
  • Groceries
  • Debt payments such as car loans or student loans

Adding up how much money you need each month to cover these expenses can give you a number to shoot for initially. The money can help you stay afloat in case of an emergency, such as if you lose your job or become injured and unable to work. 

Once you have saved enough for your living expenses, you may want to focus your attention on saving money for other causes as well, such as investments. While having a money cushion is always desirable, you also want to look out for your long-term interests by using your money to make money. Six months of living expenses can carry you through almost any emergency.

Where to Keep Your Emergency Fund

Emergency fund money should be easily accessible. You need to be able to retrieve your money to pay bills or cover significant, unexpected expenses, so keep it in a place where you can get to it quickly. 

A savings account dedicated to your emergency funds is the best way to save. You separate the money from your checking account, so you aren't tempted to use it to pay for everyday expenses or even something extra, like a new video game console. Your money will grow in a higher-interest-rate savings account, though it won't reap the benefits it would if you invested in the stock market or a CD. However, money is hard to access in those places, and you need liquid funds. 

How to Build an Emergency Fund

Even people with comfortable jobs (even those paying more than $100,000) simply aren't prepared to pay for something unexpected. They can afford all their regular bills, their day-to-day expenses -- but that leads to a level of false confidence that can be dangerous when disaster strikes. A sudden life event such as the loss of a job, a medical emergency, or a car accident drives even high earners into immediate debt.

If you don't know how you would handle such an issue, don't allow yourself to sink into complacency. Instead, follow the steps below to start building your emergency fund.

Dig Into Your Savings

If your income provides you with enough flexibility to allocate money where it's needed, there's a solid chance you will be able to put money into savings after each paycheck.

For most Americans, 50-60 percent of their earnings go directly into the major bills -- rent, car payments, etc. The rest is divided between food, insurance, gas, and extras. Even if you only have about 5-10 percent of your total monthly earnings left over at the end of the month, that is a healthy amount to pour into a savings account. Over a few months, that money will undoubtedly grow. And if you're able to pay off debts through your budget using the popular snowball method we've discussed in the past, you'll be able to allocate more money to your savings over time. With this money, you can start an emergency fund.

A good emergency fund will properly prepare you for unexpected life events and provide a temporary monetary solution while you figure out your next steps. Though you may not realize it when you are first setting aside money for your emergency fund, you'll appreciate the effort you made when you go to use it in the future. 

Also, keep in mind that it's important to continue to add money to your emergency fund even as you use it. This savings account shouldn't be a one-and-done situation. Keeping money in your emergency fund at all times will ensure you stay prepared for emergencies and will give you peace of mind when one occurs.

Reimagine Your Budget

If you've read our blog before, you know we highly recommend keeping a budget. Revisiting your budget to tighten it up and reduce unnecessary costs can free up the money you need for overcoming financial hardship. Think about places where you can decrease or eliminate your expenses, such as: 

  • Streaming services: Limit yourself to one instead of subscribing to multiple services.
  • Dining out: Stop going to restaurants for the next few months.
  • Entertainment: Skip a trip to the movies or a concert, and stay in with your family to play a board game instead.
  • Cable bills: Cancel your cable service or move to a less-expensive package.
  • Groceries: Switch to generic brands instead of buying name-brand products.

If you make just a few changes, you can save hundreds each month, getting you through your financial emergency. 

Make Some Extra Money

You may already have a job, but you can always pick up a side gig to increase your income. Everything you make, you can put toward your financial crisis help. If you aren't sure where to begin, think about your hobbies and what you like to do during your downtime. Can you monetize any of them? 

For example, if you enjoy working out, you could make extra money as an aerobics instructor or personal trainer. Someone who loves to sew could sell the clothes they make. A baker can sell their cakes and pies.

Many side hustles don't require experience. If you have a driver's license, you might be able to drive for a rideshare service. Even if you have never had a pet, you can become a dog walker. You could also try earning passive income by renting out the extra room in your home. 

Negotiate With Your Lenders

If you're wondering how to survive a financial emergency caused by debt to just one or two lenders, you could solve your hardship by appealing to their humanity. Many people become overwhelmed by medical or credit card debt through no fault of their own. Perhaps you lost your job or were in an accident. 

Go directly to your lender and explain your situation. Ask them to work with you on finding a solution that benefits both of you. If you can pay off your debt over a more extended period with a lower interest rate, both sides win. This strategy works best if you talk to your lender before you get behind in your bills.

Reach Out to Friends and Family

No one likes the idea of having to call someone they know to ask for money. But everyone understands what it's like to go through a difficult period that can only be solved with a little money.

That's why there's a good chance your family and friends will be willing to help you out if only just a little. They might not be able to completely help you with your problem, but what they contribute might go far toward fixing it.

Just remember how important it is to pay them back. Ask them upfront when they'd like the money back, and work hard toward repaying them for their generosity.

Consider Using Credit

In the past, we've discussed the value of having a credit card to handle small expenses — as long as you pay them back quickly. No one likes going deeper into debt, especially as the result of surviving a financial crisis.

So, if you have a credit card with a spending limit that would allow you to handle your emergency promptly, go for it. But whatever you do, don't put yourself into an even worse situation by overspending on your credit card and racking up a bunch of expensive fees.

For a great comparison between credit cards and personal loans, check out our blog post on the topic.

How to Get Immediate Help

If you've just started working on savings for your emergency fund and the worst occurs, you have several options. First, determine exactly how much of your current savings or extra money you can use to throw at the problem.

Next, you can look into obtaining financial help in other areas. For instance, a personal loan of up to $1,400 from a lender like Atlas Credit with locations in Texas, Oklahoma, and Virginia can help! By applying for a personal loan online or in person, you can get a quick and easy supplement to your monthly income that will allow you to make it through even the most trying of times. 

We are a responsible lender, so you can trust that we will give you a loan that will not hurt you in the future, and we will offer a detailed plan to help you confidently repay the money.

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