Discover smart ways to build and manage your emergency fund. Learn how to navigate financial crises without relying on expensive credit.
One of the best pieces of financial advice you will ever hear is to save for an emergency fund that you can dip into when you have… well, a financial emergency so that you can get what you need without having to rely on expensive credit.
Take today, for example; knowing I have my vans MOT next week, I went to a trustworthy tyre garage to have them check my tyres over for me, as I would rather know now if a tyre is going to fail my MOT rather than during the MOT, as that is a pain, and guess what, 2 new tyres needed, and me £150 out of pocket!
That £150 came from my emergency fund, so I didn't have to use the credit card! I would rather keep the card free in case the MOT throws something unexpected up and it needs the card to fund it!
My emergency fund is now pretty much empty; much as I would like to have a stash of cash put away, life gets in the way, especially at the moment when everything is so expensive, and so I'll have to start adding to the emergency fund again, as and when I can, (it was already pretty empty after having to buy a new washing machine a few weeks ago!), but of course, it can take a while to build up a sizeable emergency fund, and even if you do, having an emergency may mean that it ends up getting depleted and needs to be built up again. So, what exactly do you do when your emergency fund is not enough to cover a crisis?
Make sure it really is an emergency!
Before you start to panic, look at the problem and ensure it really is an emergency. You may not be able to wait a while to repair a roof that is leaking, but you can probably hold off on replacing the dryer if it is summer and you can line dry instead. There’s no point panicking and getting into debt if the emergency is not a real one. For the record, a new pair of nice shoes is probably not an emergency! That's a message for my daughter, who's idea of an emergency is needing to get the latest pair of trainers, which normally cost more than I pay for a dozen pairs of shoes! In general, any situation that requires a person to pay a significant amount of money unexpectedly or leads to a loss of income can be considered a financial emergency.
Reduce payments to the minimum.
If you have debts, then reducing payments to the minimum for a while and using the extras you save to pay for your emergency money situation could be a good way to get access to the funds you need when you need them the most, but make sure that you keep up with payments for the essentials like food and shelter because they are more important than almost any other emergency you can think of. Never be afraid to speak to your bank or someone you have a debt with, even your mortgage; they may well be able to help, for example, I pay my council tax over 10 months, meaning I don't pay anything in February and March, and when I got hit with an unexpected bill, I spoke to the council, and they changed it, so I didn't pay in April and May, which removed a fairly large monthly expense for 2 months in a row, and then I just paid in February and March the next year, so I was able to save money going out when I was most in need. It took 5 minutes to sort out, so was well worth the call!
Try to negotiate
If you have some money in your emergency fund, just not enough to cover whatever it is you need, you may be able to negotiate a better deal with the provider or at least be able to negotiate to pay a lump sum now and then paying off the rest of the balance in instalments later. It won’t always work out, but if you don’t ask, you won’t get, so don’t be afraid to negotiate a better deal.
Consider low-interest loans
It’s not always ideal, but if you have a real emergency, such as a sick pet who needs medical treatment asap, for example, then taking out a low-interest loan might be a good idea. Check you can afford the repayments first, and look at all of your options, from credit union loans to refurbishment bridging loans that can be used to repair your home, and choose the credit product that offers the best value and which you can confidently pay back quickly.
Make extras money
Yes, you might need the cash quickly, but it is possible to make fast money by doing an extra few shifts at work or taking on a freelance job for a few hours to make up the shortfall, and doing so may be a better option than getting into more debt, even if it is a bit more manic for you for a few days. You could ask a family member to help you out and then pay them back, using a side hustle over time, which takes away the immediate stress, and also is likely to come interest-free, although, of course, not everyone has someone who can help.
We've blogged about side hustles many times in the past, and this previous post, which discusses lots of side hustle options, may prove useful!
If your emergency fund is not enough, you do still have options, so don’t panic!