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Financial emergencies are the worst, they come when we least expect them, and we never know how much they’ll cost us. Replacing a computer is relatively inexpensive, but a job loss could potentially ruin our cash flow for an extended period of time.

Preparing for these emergencies is one thing, but how we handle the situations when they actually happen is a totally different story. Here’s some tips on how to deal with a financial emergency.

when dealing with a financial emergency, calm down

Dealing with a financial emergency

Calm down – It’s a pretty natural response for us to stress out when a financial emergency comes up, but obviously that won’t help the situation. During these stressful times we tend to make emotional decisions that tends to further complicate things. Instead, take a moment and calm down.

As long as we have a clear mind, and our heads are in the right place, we’ll be able to make much more rational decisions moving forward. Yes it’s still stressful time, but we shouldn’t let that affect our judgement.

Use your emergency fund  The whole point of our emergency funds are for these difficult financial situations so we shouldn’t feel guilty about cashing out. That being said, if it’s your income that’s been affected, try to make your emergency fund last as long as possible.

If you currently don’t have an emergency fund in place, then start putting some money aside for it now. Generally speaking, you want to set aside 3-6months worth of living expenses in this fund. Some people prefer to use their lines of credit to deal with emergencies, but that will potentially put you into a bigger hole so try to avoid it if you can.

Watch your spending – Money management becomes paramount when a financial emergency comes up, so take a look at your budget and see what you can cut. Eating out, entertainment, and shopping are easy things to cut, but if we’re expecting a reduced income for an extended period of time, we may want to think about cutting other things like cable, gym memberships, and magazine subscriptions. We shouldn’t feel guilty if we need to reduce our savings; necessities take priority in these situations.

Speaking of necessities, those should be our spending priorities. Secured debts, such as mortgages and car loans still need to be paid on time, and of course food needs to be put on the table. Money can get tight fast, so it’s important that we prioritize our spending.

[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][icon name=”share” class=””] Related: 7 Things to stop wasting money on

Contact your creditors – Depending on the situation, it may be hard for us to meet certain bill requirements, so it’s in our best interest to reach out to our creditors and service providers in advance. Some of them may allow us to defer payments for a time, while others might be willing to offer alternative payment options. There’s no guarantee that they’ll offer us anything, but ignoring our bills will not make the them go away.

financial emergency call

Sell some stuff – This one can be tricky, but if our income has been reduced, it’s in our best interests to find some more ways to make money. Selling stuff is a good way to begin, but stick to getting rid of good condition things you no longer need. Selling your computer or wedding ring might bring in some quick cash, but you’ll probably regret that decision instantly.

Final word

No one wants to face a financial emergency but the odds are you’ll be hit by one eventually. Setting up an emergency fund should be high on your priorities list, and it’s also a good idea to review your insurance policies. Finally, avoid debt, emergency expenses can be nearly impossible to deal with if you’re already struggling with consumer debt.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

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About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi

8 Comments

  1. Avatar Chonce on June 1, 2015 at 10:27 AM

    I love your first piece of advice here to calm down because making decisions in haste based on your emotions is not a good idea. Building up a solid emergency fund is a must because no one knows what the future holds and it’s best to be prepared.

    • Avatar Barry Choi on June 1, 2015 at 8:51 PM

      Chonce,

      Definitely you need to take a step back when making decisions. I’ve made some terrible choices while emotional.

  2. Avatar anumyoon on June 1, 2015 at 4:06 PM

    It’s so important to contact your creditors like you mentioned. I couldn’t pay my electricity bill for a couple months (it was around $400/month at the time) because my roommates weren’t timely with their payments, so I contacted my service provider, and they let me just pay my portion of the bill until I was able to pay them off fully (when my roommates FINALLY paid up). I’m not sure how flexible other companies will be, but the key here is that you shouldn’t be afraid to ask 🙂 These are really good tips, Barry!

    • Avatar Barry Choi on June 1, 2015 at 8:53 PM

      Anumuyoon,

      Awesome that your creditor was willing to at least accept a partial payment and atleast your roommateseventuallypaid you back.

  3. Avatar seattlegirluw on June 8, 2015 at 12:25 PM

    Calming down is really integral. Both my husband and myself have health problems. Between those, an older house and general bad luck, we’ve gotten used to strings of unexpected expenses. Not always emergencies, but sometimes they feel similar. Freaking out over every single one was going to kill me. So I just try to remind myself that this is why we have savings (because, I mean, who actually wants to keep savings intact anyway?) and… there’s nothing I can do anyway. So I take a deep breath and try to go watch something that will make me laugh.

    • Avatar Barry Choi on June 8, 2015 at 12:36 PM

      Seattlegirluw,

      Calming down can be tough, even I can get worked up over something small. Great idea to adopt the “it happens” attitude, it’s out of your control most of the time.

  4. Avatar Virna on June 9, 2015 at 9:50 PM

    Great advice….having an emergency fund is absolutely important.

    • Avatar Barry Choi on June 9, 2015 at 10:41 PM

      Virna,

      Definitely, you never when an emergency will come up.

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