The term “unexpected expenses” makes a lot of people anxious. In fact, according to the Federal Reserve, in 2021, around 32% of Americans claimed they will likely struggle to cover the cost of an unexpected expense greater than $400. More recent data from YouGov shows that the number has risen to 49%.
It’s easy to understand why. Living costs have skyrocketed in recent months due to inflation, while wages have not kept up. This undoubtedly forced many Americans to dip into their existing savings to cover their costs, while others may not even be able to set any money aside.
Apart from the financial stress of these situations, people often face a great deal of pressure and stress. Often, you’ll have to take money away from something (holiday plans, bills, savings) to cover these expenses.
So, whether it’s medical bills, home improvement costs, or school fees, can you effectively prepare for such unexpected expenses?
The answer is: yes. Keep reading this article to find out 3 great ways to prepare for unexpected expenses:
An emergency fund can offer you a quick and simple way to get some extra cash to cover unexpected expenses - without needing to dip into your monthly budget. Essentially, it’s just like a savings account, only you specifically set it up in order to cover unexpected expenses as they come up.
In general, you should strive to have around 3 months' worth of wages in your emergency fund, which can offer you a nice safety net in these tense moments. Of course, it’s not about saving overnight, as the emergency fund itself is not supposed to add extra pressure on your monthly budget.
Like with all savings, start setting aside small amounts regularly. Consider your monthly expenses and how much you can realistically (and comfortably) set aside in your emergency fund. This helps you steadily build up toward your goal and even start earning interest.
It’s worth looking at what the unexpected expenses might be and seeing whether you can plan for them (at least a bit) beforehand.
Some of the most common unexpected expenses are:
For many of them, saving in an emergency fund is the best way to go. But for others, you may be able to protect yourself even better.
For insurance, you can review your health and home insurance to see exactly what sort of costs are covered. Perhaps you can upgrade your plans to get even better protection, which may mean spending a bit more on insurance now, but fewer upfront costs during an unexpected expense.
Of course, the very nature of unexpected expenses means they cannot be accurately predicted. However, by reviewing your finances and even life circumstances, you can at least spot some areas where you might be more vulnerable.
A better credit score can help you qualify for loans with lower interest rates in cases of emergency.
If an unexpected expense occurs and you do not have enough money saved, taking out a personal loan may be a good solution to get out of this predicament. A strong credit score can help you qualify for these loans, but it can also help you access other lines of credit in a pinch.
One of the best ways to improve your current credit score is to keep your overall credit usage low. If you have a credit card already, it’s best to use it in cases of emergencies only, even for an unexpected expense.
Other ways to build good credit include:
First Financial Bank offers several financial products designed to help you save, access extra funds, and even manage your finances.
Whether you’re looking for a new savings account or want to take out a personal loan to cover your unexpected expenses, reach out to us today to find out more about how we can help.
The information on this page is accurate as of December 2022 and is subject to change. First Financial Bank is not affiliated with any third-parties or third-party websites mentioned above. Any reference to any person, organization, activity, product, and/or service does not constitute or imply an endorsement. By clicking on a third-party link, you acknowledge you are leaving bankatfirst.com. First Financial Bank is not responsible for the content or security of any linked web page. Member FDIC / Equal Housing Lender.
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