How do you mitigate financial risk? Have put an emergency fund aside for when mayhem rears its ugly head? Are there good and bad ways of preparing for that time when you will need more money that you make in one month? Read more at Beyond the Ten Percent.
You never really know what life is going to throw at you; the unexpected visit to the emergency room, the water pump that failed on your car, an IRS audit that discovered you owe additional taxes from last year, or the large tree limb that damaged your home’s roof. And while most of us carry insurances that cover the lion’s share of these unexpected expenses, we all have deductibles that must come from our budget/savings.
There are some amusing, yet sobering, Allstate Insurance commercials airing now on TV suggesting that Mayhem is everywhere, that it is just around the corner waiting for you. These commercials remind me of the Scripture in 1 Peter 5:8 where our enemy is like a lion, prowling around for someone to devour. But this passage also states that we should be alert and prepared, which is why it is wise to carry insurances. (See more about insurance in my blog article: Provisions – Your Role and His)
On the Crown Money Map™, the first milestone is having an emergency fund set aside. Their recommendation of $1000 is to cover many of the things that are unplanned or unexpected. While this is a nice round number and an achievable starting point for most, it should be representative of the number aligned with your insurance policy deductibles. Today, there are high deductible health plans that allow you to start a Health Savings Account (HSA) and the deductibles associated with these plans can be as high as $6000. Therefore, please examine your emergency fund in light of your insurance policy deductibles and plan to have the higher amount set aside for an emergency.
But what if you don’t have your emergency fund established yet? What then?
I will first say that the last resort should be to use your credit card, especially if you are deep into debt. The high rates of interest charged by most credit card companies is simply too cost prohibitive. But what are the alternatives?
Here are a few to consider when you are in need of money for those unexpected expenses. (Yes, a large mouthful of humble pie may be necessary but this should never be a barrier to seeking these paths.)
Relatives: Reaching out to your brothers, sisters, parents, aunts or uncles may be a much better choice over the credit card sharks. Working out a repayment plan with a relative is much easier than with a credit card company. And you can even throw in an interest payment as well that makes it a win-win for all parties involved.
Churches: Many churches have benevolence programs to assist financially in times like these. Most will have a simple application process but these funds are gifts to you as an individual in need. If your need is large, then sometimes your church may solicit a special offering from the congregation – definitely work with your pastor on this approach as there are many ways to accomplish this in a church.
Service Provider: Don’t forget that many of the companies that you are receiving a service from would be happy to work out a payment plan with you. Yes, they may charge an interest rate but these will often be less than what you would pay with a credit card company.
But the best line of defense for the unplanned expense is a cash emergency fund. If you don’t have one today, start building it as soon as possible. Don’t wait; Mayhem is waiting for you and you don’t want to be caught unprepared!
