Human life never moves out of astonishments, be it good or bad. This is why it is imperative to possess a financial backup plan that helps you overcome any storm. While you may be the most disciplined individual when adhering to resources and saving a part of your earnings every month, unforeseen circumstances may transpire that can render you in economic ruins, particularly when you do not have a plan B.
This is when people run from pillar to post and need emergency money now to take care of their financial obligations. It is where funds and financial planning for emergency expenses come into the picture.
These emergency expenses funds are an indispensable corpus that you must put aside to tackle contingencies. It is a capital you can use at the time of crisis or for sudden and unplanned situations to meet your expenses.
Best backup plans to handle emergency expenses
Mentioned hereunder are some best options to handle emergency expenses without running out of your budget.
Emergency reserve fund
Creating an emergency reserve fund is your most effective tool for dealing with unexpected expenses. An emergency fund is a compilation of personal savings that you set aside for sudden and urgent outgoings such as car repairs, house maintenance, and medical appointments.
You can manage unforeseen issues right away with the assistance of these cash reserves without interrupting your budget. The withdrawal will not affect your ability to pay your mortgage, utilities, household goods, and other monthly necessities. The only drawback to this backup option is that it takes time to develop into a significant safety net.
Credit card payment
If you don’t have emergency savings, you could use your credit card as a fallback option. Your credit card allows the user to manage expenditures when you don’t have enough money on hand and then oversee installments later.
Before considering this option, ensure that your remaining balance is not close to your pre-approved limit. You don’t want to use your credit card to its limit. If you have different cards, use the one with the most account balance.
Line of credit facility
A personal line of credit is another lending tool that can be extremely useful in an emergency. If you apply for a line of credit digitally and are approved, you may be able to withdraw funds up to your credit card limit and have them transferred into your bank account.
When you don’t have enough income, you can use this to cover an emergency expense rapidly. You will have to reimburse the money borrowed over time, just like you would with a credit card.
Go for a short term loan
A short-term loan is yet another excellent way to meet your emergency expenses. This short-term loan can readily help you fulfill all your financial obligations with a flexible repayment option without being dependent on anyone else.
However, while there are several types of short-term loans available in the market, it is imperative to perform thorough research and examine your affordability while opting for a short-term loan. Apart from this, take your monthly earnings, regular expenses, and monetary obligations into consideration to decide your repayment capacity.
IOUs or personal borrowing
When it comes to contingency systems, an IOU should be the absolute last option. To begin with, you can’t count on your friends or relatives to have the funds you require on hand. They aren’t financial institutions. It is why requesting an IOU is not a reliable emergency solution.
Even if they sincerely want to assist you, they may not have what you require. Another reason why an IOU should only get used as a last resort is borrowing money from friends can ruin your friendships, especially if you don’t have the financial means to repay the loans straight away.
When you take funds from a financial institution, you do not get exposed to this visceral risk. Moreover, if you don’t pay back the loan on time, the lender may begin charging you penalties and interest all in the name of the business. Also, your late payment will be taken personally by a friend. Hence it is better to walk away from this backup plan as much as possible if you want to keep your friendships and family relationships intact.
Saving a fraction of your income, living within your means, ignoring unnecessary expenses, and monitoring your accounts are all sound financial habits to develop. When you develop good financial habits, you can build the fiscal discipline that will help you achieve long-term financial success.
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