No matter how careful you are with money, unforeseen expenses can disrupt your finances and leave you feeling worried. Whether your car breaks down, you need to pay unexpected medical bills, or your home requires urgent repairs, there are many things that can suddenly increase your outgoings.
For many people, living on a tight budget means constantly worrying about how to cover unexpected costs. If you don’t have much to spare at the end of each month, for example, you might dread something going wrong as you won’t have the funds to put it right.
However, there are ways you can deal with emergency expenditures effectively. While hoping that you won’t have to cover any extra costs isn’t enough to keep on an even financial keel, taking a proactive approach to your finances will ensure you can cope with any eventualities. To learn more, take a look at these six top tips for dealing with emergency expenses:
1. Take Out Insurance
Many unexpected expenses can be avoided if you have the right insurance policies in place. If your boiler malfunctions, for example, a homecare policy could ensure that repairs are carried out swiftly, at minimal cost to you. Similarly, medical insurance can drastically reduce the cost of medical treatment and give you peace of mind that you can access help as and when you need it.
Although the cost of insurance premiums can increase your monthly outgoings, there are many budget-friendly policies available. Furthermore, the amount paid out by insurance companies can far exceed what you’ve paid in premiums, depending on when and if you need to make a claim.
While insurance can certainly give you peace of mind, it’s important to choose your policies carefully. Make sure you’ve got the right level of cover and that you’re happy with any exemptions. Remember – you’ll need to pay for deductibles when you need to make a claim, so insurance won’t eradicate emergency expenses altogether, but it can reduce them by a significant amount.
2. Keep Things Well-Maintained
There are times when expenses are truly unforeseen but, in many cases, it is possible to predict when things are likely to stop working. If your vehicle doesn’t start regularly, for example, it might only be a matter of time before it stops running completely. If you’re struggling financially, you might postpone making repairs because of the cost involved but this can sometimes backfire. Ignoring an issue allows it to worsen, and potentially causes more damage, which means additional costs in the long-term.
By keeping your vehicle and property well-maintained, however, you can identify potential issues and plan for them in advance. This allows you to spread the cost of upcoming repairs and schedule them at a time that suits you and your family.
3. Shop Around for Replacements
When something goes wrong, you often assume that you need to replace it immediately. If you need a vehicle to get to work and yours is off the road and irreparable, for example, you’ll need to borrow a car or buy another one swiftly. However, this forces you to make a significant purchase in a short period of time, which is rarely economical.
When you keep things well-maintained, you’ll have a better idea of when replacements are likely to be needed. This gives you time to shop around to find the best deals and the most competitive prices. As a result, you’ll spend less overall but you’re also likely to be far happier with the purchase you subsequently make.
4. Build Up an Emergency Fund
Ideally, you’ll want to set some money aside everything month in the form of savings. Whether you’re saving to purchase a larger property, treat yourself to a luxury holiday or you want to pay for your kids’ college tuition, regular savings contributions help you to achieve your financial goals.
However, dipping into your savings account to deal with emergencies can be disheartening. What’s more – once you start using your savings for other purposes, it makes it more tempting to start withdrawing funds for other reasons too.
By creating a separate emergency fund, you can ensure that you have money available for unforeseen expenses, without affecting your savings. Not only will this give you peace of mind that you’re able to cope with unexpected expenditure, but it will also enable you to retain your savings and reach your financial objectives.
5. Protect Your Credit Rating
If you do need to pay for emergency expenses and you don’t have the funds available, obtaining credit could be a viable option. Taking out a low-interest personal loan could enable you to pay for critical repairs or a replacement vehicle, for example. However, you’ll struggle to get approved for credit if you have a bad credit score or a poor credit history.
While some companies do offer loans and credit cards to people with a bad credit score, you’re likely to be offered a low credit limit and a high interest rate. A restricted credit limit may mean that you’re still unable to cover your emergency expenses, while a high interest rate could mean that you’re paying off the debt for years to come.
If you protect your credit rating, however, you’ll be far more likely to be approved for a loan or credit card when and if you need it. In addition to this, you’ll retain your borrowing power and be able to access a higher credit limit, which will come in handy when you’re dealing with unforeseen costs. To learn more, take a look at Tally’s guide to credit limits. With Tally’s seamless functionality, you can manage any outstanding debts you have, make automated payments and protect your credit score, which makes managing your finances hassle-free.
6. Learn New Skills
Emergency costs are typically associated with things going wrong, such as a broken pipe in your home or faulty electrics. While there are some repairs that are best left to the professionals, learning new skills can enable you to perform a significant amount of repair and maintenance work yourself.
When you can change the oil in your vehicle, resolve a blocked drain or even replace the filters in your AC system, you can keep things properly maintained without having to pay a professional. As well as reducing the risk of things malfunctioning, this also gives you the opportunity to reduce your usual outgoings. With the money you save, you can set up your own emergency fund and even make extra contributions to your savings account.
What Constitutes Emergency Expenditure?
Generally, emergency expenditure is a cost that cannot be avoided and one that isn’t expected. If something is going to put your safety at risk if it isn’t repaired, or it will prevent you from accessing basic necessities, like water and heat, it can be considered an emergency expense.
Although it’s easy to panic when you’re faced with emergency expenditure, there is help available. While taking steps to prepare in advance can ensure you’re able to cope with unforeseen costs more easily, it’s important to know where to seek help from too. By getting financial advice, for example, you can find out how to optimize your financial situation so that you’re able to cover any unexpected emergency expenses as they arise.