Funding Your Emergencies – Without an Emergency Fund

By Mike Peterson
In December 24, 2014

Financial emergencies pop up when you least expect them, which is why so many financial advisors recommend setting aside three to six months of living expenses in an emergency fund.  And while I agree that this is great advice, I also understand that a lot of folks simply don’t have a few thousand dollars sitting around in the bank in case of emergency.  In fact, according to a recent article in The Wall Street Journal, one in four Americans currently has no emergency savings at all.

Now, I’m not going lecture you about why it’s important to have an emergency fund.  At this point, you probably already know why you should have one and you’ve probably read a few articles about ways to start building one.  But what happens if an emergency strikes and you don’t have any significant emergency fund savings?  What do you do if you’re one week into your emergency fund savings plan and your car engine dies or your water heater gives out?

In other words, how do you plan for financial emergencies when you have little or no emergency funds saved up?  How do you handle the unexpected without going broke or racking up debt?

I’ll be honest: It’s not easy.  But it’s not impossible, either.  Here are some do’s and don’ts for dealing with the unexpected without an emergency fund.

DO:

  • Prioritize your emergencies. Some emergencies are more urgent than others.  My advice:  Deal with any true emergencies right away.  Hold off on anything that’s more of an inconvenience until you can save up the money.  For example, if you are a one-car family and your car’s engine dies, that’s an emergency.   You have to find a way to get it fixed or you and your spouse can’t go to work.  If your dishwasher goes out, that’s more of an inconvenience.  You might not enjoy hand-washing dishes – but you can survive until you get the money together to buy a replacement.
  • Stay on top of your credit card payments. Financial emergencies can take a huge bite out of your bank account and make it difficult to keep up with your normal expenses.  Don’t let an emergency ruin your credit score.  If you think that you’ll have a problem making your credit card payment on time, call your lender and see if you can make an arrangement to change your payment date.  Some lenders even offer short-term programs for people facing financial hardships.  If you have a stable payment history, you may have a few options available.
  • Cut any unnecessary bills or extra spending. If you don’t have an emergency fund, you have to deal with unexpected expenses using whatever funds you do have available – and in some cases that might mean tightening the budget in other areas.  Sit down with your monthly bills and last month’s bank statement and do a quick assessment:  Are there any bills you can cancel or suspend until your finances are back in the black?  Can you cut out cable or live without a landline telephone?  Can you put a hold on your Netflix account?  Can you trim down your grocery bill or give up fast-food lunches or drive-thru coffee?  You might be surprised at how much cash you can pull together.

 

DON’T:

  • Use your credit cards if you can’t pay them back. Some folks skip the whole “emergency fund” thing and just start using credit cards as a safety net – but I’m not in favor of this strategy.  Credit cards are useful tools – but only when used responsibly.  And in my book “responsible use” means paying your entire balance off – in full – every month.  If you can’t afford to pay cash to get out of an emergency, it’s unlikely that you’ll be able to pay your credit card balance off, either.
  • Take out a payday loan. Just don’t.  Payday loans take advantage of people in tough situations by offering relatively small loans with sky-high interest rates that can take forever to pay back.
  • Forget to check your warranties and/or insurance. If your financial emergency is related to your car or home, check to see if you have a warranty or insurance policy that can help.  Cars often come with warranties that last anywhere from 75,000 to 100,000 miles.  Most appliances have some sort of warranty, as well.  And don’t forget to call your insurance company and see what kind of policy you have.  You may find that all or part of the repair or replacement is covered!

 

In a perfect world, we’d all have the recommended three to six months of living expenses safely tucked away in case of emergency.  But life isn’t perfect.  Cars break down.  Roofs leak.  Things break.  If you don’t have an emergency fund, I definitely recommend that you start building one by putting away whatever you can out of every paycheck.  But in the meantime, I hope these tips help you cope with unexpected expenses.

 

Here’s to an emergency-free start to the holiday season!

Mike Peterson

Mike is the author of “Reality Millionaire: Proven Tips to Retire Rich” and he has been published in a variety of local and national publications including Entrepreneur Magazine, Deseret Morning News, LDS Living Magazine, and Physicians Money Digest. He holds a B.S. in business administration from the University of Phoenix.