There may come a time when you’re faced with an unprecedented expense. This could be in the form of an urgent car repair, emergency vet bills, or medical costs – and you may be left wondering how you’re going to pay for this. Of course, there is financial help in the form of a payday or short-term loan, but knowing how to manage these expenses yourself is beneficial and means you can avoid falling into debt. Below, we’ll take a closer look at how you can bridge budget gaps when faced with an emergency cost.
Build an emergency fund
Whilst you don’t always know when an unprecedented cost is going to hit, there are ways you can be prepared – with an emergency fund. This is the first step to bridging budget gaps. Saving a little each month to create an emergency fund creates a financial cushion to help you when the unexpected occurs. Experts suggest that your fund should cover at least three to six months’ worth of living expenses to help you when times get tough.
Save a little at a time and remain consistent until cash builds up and reaches your desired amount. Having this money separate from your current account allows you to deal with an emergency without putting your finances at risk.
Create a short-term budget
Creating a budget is a great way of managing your finances, and if you’re dealing with an emergency cost, making short-term adjustments can be helpful. Just like a monthly budget, your short-term budget will be adjusted to redirect funds towards the emergency cost. This could mean cutting back on non-essential expenses in the meantime or reallocating money from your savings. Having a plan in place for how to adjust your budget when needed can help you navigate costs without disrupting your overall financial goals.
Explore alternative payment options
Whilst having your own money to bridge gaps with is ideal, there are also payment options you could utilize to help you when you need it most, such as:
- Negotiating terms: You could contact your service provider or creditor and see if they are willing to work with you on a more flexible payment plan. Ensure you’re aware of your options when it comes to negotiating to find the best deal for you.
- Use credit cards wisely: Credit cards can be helpful but should be used wisely. Look for credit cards that have low-interest rates or zero-interest introductory offers to minimize the overall cost of borrowing.
- Personal loans: You should consider applying for a personal loan from a bank or credit union if you have a good credit history. These loans offer lower interest rates than other types of finance like credit cards and can be a good way of covering expenses if you have no other way to do this.
Cut unnecessary expenses
When you’re faced with an emergency cost, you’ll need to prioritize making this payment, which means cutting unnecessary expenses. Take a look at your budget and determine where you’re spending too much money. This might mean dining out less, canceling non-essential subscriptions, or cutting down on purchases that you don’t really need. This may mean sacrificing things you want or enjoy in the short term, but it will benefit your overall financial stability in the long term.
If you’re not sure where to turn, you can always seek advice from charities, accountants, and financial advisers should you not know what your next steps should be to tackle your emergency cost. There is no harm in reaching out, especially when your money is at risk. This could also help you learn more about money management and put you in a better position for the future.