Unexpected situations can’t be avoided, but by planning ahead you can ease stress when these situations arise. You don’t want to make wrong financial decisions when under stress. The following five tips will help you to handle financial expenses in unexpected situations.
1. Create a safety net. With unemployment rates climbing there is no such thing as a secure job today. Therefore, it is a good idea to be as prepared as if you would lose your job tomorrow. The best way to prepare for this is to have three to nine month’s worth of living expenses saved up in your bank account. If unemployment strikes then you may need to consider lowering your standard of living so you don’t get in debt. If you rely on credit cards in unexpected situations it will be even harder to get on your feet afterwards.
2. If you have unexpected expenses that exceed the living expenses you have saved up in your bank account then you need to look into other options. If you own a home, you can borrow with a home equity line of credit. If you don’t have enough equity in your home to do this then you can consider using your 401(k) savings. In this case you will not be taxed because you are borrowing from your own money. However, it is still a loan and you will have to make payments. If you miss a payment then the remaining balance will be considered income and will start to be taxed.
3. A good preparation is to have home owners insurance. However, should a natural disaster occur you can also rely on financial relief from FEMA. If you are insured and you still can’t afford all your damages then you are eligible for a grant. However, the grant can’t be used for personnel effects but rather on the home to make it safe and secure. If the cost is still not covered, the government offers low-interest, long-term loans that will help cover costs.
4. If you are traveling in a foreign country when you lose your cash or credit cards then it is a good idea to contact the U.S. embassy. They will help you contact family, friends or your employer so you can get additional funds. They will often arrange for money wiring, calls to your credit card company or bank-to-bank transfers.
5. No unexpected expenses total up faster than a medical emergency, especially if you are uninsured. The first step is to set up a payment plan with the hospital’s business office. An option for paying is to borrow against your IRA. In a medical emergency they will allow you to withdraw funds without a penalty, but you’ll pay income taxes on the withdrawal. Take a look at your bill, since hospitals often overcharge those who are uninsured. Then look for a lawyer who works on a contingency basis so you don’t have to pay up front. After the trail you bill could be lowered up to half. Even if you have a medical bill, always try to pay off the bills with higher interests first.