When you think of emergencies, what comes to mind? Maybe house fires or having a heart attack, a flood or an earthquake. But what about the supposed small emergencies – an unexpected dental bill, a burned out vehicle transmission, or job loss? These events may not be what we typically consider emergencies, but if you don’t have the savings to deal with them, the financial ramifications can last for years and even push you into bankruptcy. And most Americans don’t have that savings.
According to a 2016 study, 63% of Americans don’t have savings to cover $500-$1000 in emergency expenses. Never mind losing your home in a fire or coping with the sudden death of a wage earner – we need to think about emergency preparation at a much smaller scale because these three situations are the most likely sources of financial trouble.
Losing your job is one of the most common and serious financial issues an individual can face because once you no longer have a source of income, every expense becomes a crisis. And even if you qualify for unemployment or a severance package, you’ll need to have savings to fall back on once these limited supports run out. Most financial experts recommend saving at least one month’s income as reserve for just such an emergency – enough to pay your rent, buy groceries, and cover other bills. Of course, if you save the equivalent of a month’s income, you’ll also be prepared for other common financial problems, such as medical expenses.
Medical expenses are the leading cause of bankruptcy in the United States, and while insurance offers some insulation against these expenses, it isn’t always enough. Many people have high deductibles that force them to pay exorbitant out-of-pocket fees before they receive coverage and most lack dental coverage – so if you need an emergency root canal, beware. A single root canal costs $1000 to $1300, on average, but even a filling can cost between $50 and $250.
So what can you do to prepare for potential medical needs besides investing in an insurance policy and getting preventative care? Emergency loans can help you pay for unexpected medical expenses, like an E.R. visit, and many hospitals also offer payment plans on care. And if you receive care at a major university or private hospital, there may also be a financial aid and debt relief program for low-income patients. As it turns out, sometimes being financially prepared for an emergency is primarily about knowing how to research your options and negotiate complicated bureaucracy.
Like job loss, car expenses can create financial problems that radiate out. Not only do you need to pay for repairs or for a new car, but you also may need to find funds for a rental, to take public transit or taxis, or risk losing your job because you can’t get there reliably. So what’s your saving plan?
Just as with your physical health, you should invest in car maintenance rather than waiting for an emergency; change the oil, clean the filters, and rotate your tires regularly. But if you want to keep your car on the road for years to come, you’ll likely need to shell out for some bigger repairs eventually, and the best way to do this is to set aside a little money each month for car expenses. Assess your past spending on the car and create a maintenance fund. And be loyal to your mechanic – like many other things, repairs costs are negotiable and if you have a good relationship with your mechanic they can help you make better decisions, such as opting for used parts, when repairs are needed.
Good budgeting habits are a critical skill that can help secure your future against debt and bankruptcy, and this starts with the smaller expenses. And once you make saving a habit, you’ll quickly find the small sums add up to serious security.