We’ve all experienced unplanned emergencies: Car engine repairs. An emergency room visit with your kid. A higher than normal utility bill.
But, when shtuff really hits the fan: like when your manager calls you into the office at 5:00 pm and hands you a cardboard box to pack your stuff. Or, when your girlfriend/boyfriend/wife/(fill-in-the-blank) kicks you out and changes the locks. Or, simply because of an unexpected illness and high medical bills – you may be challenged financially as well as emotionally. Making decisions based on emotion can be financially devastating if you’re not careful.
Fear and frustration zap the energy you need to make good decisions. Anyone that has ever had to act quickly to get out of a situation understands that anguish and the need to look for the quickest way to relieve the pain – often at high financial cost.
Some of us have an idea of what we would do during an emergency. But, here are 5 things NOT to do during a life crisis if you don’t want to ruin your finances:
#1: Do NOT stay in harm’s way. Get to safety IMMEDIATELY!
If you’re in a situation where you can be harmed physically or you don’t have shelter, get help immediately. The safety of you and your loved ones is priority #1.
#2: Do NOT make major financial decisions under duress
I have a niece who abruptly moved out of the apartment she shared with her boyfriend – with baby in tow. She immediately moved in with her sister and, after a couple of weeks, decided she wanted to buy her own home to have a stable and permanent place to live with her child.
She called me to ask for funds for a down payment. Normally, this would have been a good option to help her re-start her life. However, she was in no immediate danger (see #1), she had a place to sleep, food to eat, and was with loved ones.
Instead of money for a down payment, I offered her advice that I think is a lot more valuable.
I told my niece that she was feeling the stress of a break up and not feeling secure about having her own space. She jumped too quickly to buying a home instead of taking the next step to stop and stabilize her life until she saved money. That is to say that her next big financial move was not well thought out yet.
When faced with a crisis, try to STOP, take a breath, think about what you need to do, then make your next move.
#3: Do NOT ignore your spending habits
Your daily spending habits for food, transportation, medical care – all of life’s necessities – may have changed during a major crisis. However, this is the time to laser focus on your spending to maintain control. Your spending limits may increase or decrease, but you have to control what goes in or out. If you don’t, you could spend more that you can afford and find that a bad financial situation has crept up on you.
For instance, $10 a day wasted for six months ($10×182.5 day = $1,825) could be a nice down payment on a place to stay, or getting yourself out of debt!
#4: If you have to borrow, do NOT borrow more than you can afford.
You’ll know how much you can afford by evaluating your budget, knowing how much you have in savings, and knowing your upcoming expenses. Reputable banks will help you evaluate this, but be aware of your financial standing ahead before you apply for a loan.
#5: Do NOT spend more than fair price for your immediate needs.
Unfortunately, there are shady individuals and companies that may try to take advantage of your stressful situation. They may try to price gouge you or offer loans at very high predatory rates. Fast loans sound enticing and offer immediate financial relief. But, long-term…these loans just trade immediate relief for delayed pain. Payday loans? STAY AWAY FROM THEM! The interest charged on these loans can make a $500 loan actually cost you $2,000!!!
Final advice
Unexpected emergencies are a part of life and the best way to mitigate them is before they occur. But, let’s face it: no one can predict EVERY circumstance that can occur. However, you can eliminate much of your stress if you are financially prepared.
So, contribute regularly to your emergency fund. Create a goal to reach a small balance at first, say $500. Then, move up to $1000. Then, work your way up to 3 to 6 months of your expenses.
And when a crises does happen, remember to:
Stabilize.
Think.
Plan.
Act.
Have you ever been in a stressful situation where you made a bad decision? I’d like to hear your story. Share your story in the comments 🙂