If today you ran into a financial hardship, what would you do?
According to a survey from the Federal Reserve Board, around 25% of households dealt with a financial crisis in the last year, with the top hardship experiences being:
- Job loss (37%)
- Health emergency (37%)
- Work hours/pay cuts (29%)
No matter what income bracket a person falls into, people in each category have difficulty maintaining a financial safety cushion.
The Federal Reserve Board conducted a “financial fragility” test in which people were asked how they would manage a small disruption in which they would need $400. Here are the results:
- 53% could pay using cash, checking/savings accounts or a credit card they would pay be able to pay in full at their next statement
- 14% could not handle the expense
- 10% would sell something
- 18% would pay with a credit card that they would pay off over time
- 13% would borrow from friends or family
- 2% would apply for a payday loan
How To Prepare Yourself
In order to prepare yourself for an emergency, assess your situation now:
- Analyze your income in comparison to your bills and savings.
- Create a budget along with the minimum amount for food, shelter, and other necessities.
- Compare it with your household income to see where you fall.
- If it appears you couldn’t cover an emergency event, see where you can save money, turn to a credit counseling agency to ask for suggestions, or negotiate with existing creditors.
The next step (which may help you with the first step) is to track your spending in order to see where your money is actually going and where you can save:
- Reduce your food bills by cooking more, taking lunch to work instead of paying for food and cook with friends rather than going out for dinner.
- You may also want to consider how to cut your transportation costs by carpooling, walking, riding your bike or taking public transportation to reduce your gas and maintenance costs on your car.
- Trim your monthly expenses such as your utilities, cable and cell phone bills. The amounts may be small but the savings will quickly add up.
Start planning ahead now and see how you could handle a financial downfall. Save your money now and thank yourself in the long run.