A financial emergency may have previously seemed like a “not me” scenario, but it’s now a reality many families across America.
Those families are dealing with as the impact of the COVID-19 pandemic continues to affect the economy.
Savings accounts may not be robust enough to weather a significant blow, according to research from Colonial Life. The survey found 38% of U.S. adults have less than $5,000 in savings for a financial emergency, and 23% have less than $1,000.
The study further revealed Americans are already stretched thin due to financial constraints like vehicles with mechanical problems, an unemployed spouse or partner, supporting children and other dependents, mortgage payments, and other debt.
Planning ahead for a financial emergency with tips like these can help reduce the long-term impact on your finances and credit.
Avoid unnecessary charges. Late payment fees can add up fast and put a dent in your credit rating. Take inventory of your monthly expenses and note the due dates then plan a payment schedule around your paychecks. Be sure to account for possible mail delays or the time needed for electronic transfers. If your schedule doesn’t work, contact your creditor and ask if you can move to a different due date that helps reduce your risk.
Anticipate unforeseen illnesses. A critical illness such as a heart attack, stroke or major organ failure can impact anyone, from the least health-conscious to the most fit. When a critical illness strikes, major expenses often follow. Health insurance may cover some of your medical costs, but not everything. An option like ColonialLife critical illness insurance helps supplement your major medical coverage by providing a lump-sum benefit you can use to pay direct and indirect costs related to some of the most prevalent critical illnesses.
Reduce debt. Doing what you can now to reduce your financial obligations can pay off in the long run if you experience a loss of income. That may mean making extra payments on a loan rather than paying just the minimum balance due. Interest is calculated based on your balance, so paying extra not only reduces your original debt, but also saves you money that would have been lost to interest.
Keep up on maintenance. When money is tight or you’re worried a reduction is coming soon, it may seem counterintuitive to spend money. However, taking care of ongoing maintenance for big-ticket items like your home and vehicle is an investment in the future. Spending a little now to keep things in good working order can help protect you from a costly problem down the road.
Start thinking smaller. Lifestyle adjustments can be tough when they’re abrupt and unexpected, but if you gradually transition to a more frugal way of living it may not feel as disruptive. For example, start by cutting back on entertainment expenses and dining out. Look for lower-cost ways to enjoy time with loved ones and dial back spending on things like birthday gifts.
Photo courtesy of Getty Images.
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