During this past holiday season I was involved in one of those perfect financial emergencies that happen to young families every once in awhile. First, my car sprung four simultaneous leaks, resulting in the purchase of a new vehicle. One week later, I replaced our dryer after the heating element went out on the old one. A week after that my garage door broke. Murphy made a final call around Christmas when we incurred over one thousand dollars in repair costs for our family van. Needless to say, we gingerly walked around our home waiting for the next disaster to take place, all the while wondering how we were going to repair our finances after such a hit.
Murphy’s goal is to rattle a young family’s sense of security. When he’s successful, this leads to panic, frayed nerves, and arguments over every little expense. Luckily, there are ways to counteract the machinations of the troublemaker. Here are a few tips.
Don’t Get Desperate
Families that run into Murphy for an extended period of time can get desperate for any type of solution to ease their financial situation. When this occurs, they may withdraw funds from an IRA or 401(k), not pay their mortgage or car payment, of skip a utility bill. These scenarios should never be utilized during a financial emergency since they can lead to worse situations in the future.
For instance, removal of funds from an IRA or 401(k) are penalized by both the financial institution and the federal government if withdrawn ahead of schedule. Foreclosure proceedings can commence if you skip a mortgage payment or two, and your car can be repossessed if you miss a few payments. Not paying utilities bills can result in the shutdown of your gas, electricity, or water. Basic rule – sit down, take a breath, and examine all options before taking these drastic measures during a financial emergency.
Cut Out Incidental Expenses
Watching daytime talk shows may be calming your mind, but it’s not saving you any money. If in the middle of a financial emergency, check your budget to see what expenses can be cut in order to free up some additional funds. eliminate cable or satellite service, halt dining out and movie nights, walk someplace instead of drive in order to decrease your costs. The money you save may help subdue your panic.
The Good Old Emergency Fund
The best thing to ease money fears is to ensure you have an emergency fund set up. This account should contain three to six months of household expenses – food, clothes, utilities, rent or mortgage, basic transportation costs, etc. How much your family puts into this account depends on its size and the amount of expenses. Consider starting a budget if you’re unsure of how much is spent on these household items on a monthly basis.
The emergency fund should be used when Murphy decides to invite himself into your home. If it gets depleted for any reason, design a plan to re-add the funds in the shortest time possible. And no matter how tempting it is, never use the emergency fund for incidental expenses.