4 Steps To Take When Your Emergency Fund Doesn’t Cover Your Emergency
Written by
David Nadelle
Edited by
Amen Oyiboke
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Having a financial safety net to cover unexpected medical costs, the loss of a job or income, or large expenses, like car repairs or appliance replacements, is essential.
However, while you won’t have to look hard to find tips on starting and maintaining an emergency fund, there’s not a lot of useful information out there to assist you when your emergency fund falls short in covering an emergency.
Here are four things to do if an emergency has emptied out your emergency fund.
Stop Spending
When inflation and consumer prices stretch your income to the limit, finding extra money to fund an emergency reserve is difficult. However, it’s generally recommended that you sock away three to six months’ worth of expenses as your emergency fund goal, depending on your lifestyle and living situation.
Hindsight being 20/20, of course, you could have saved more to prepare for an emergency. But financial crises are unforeseen and you can’t live your life sacrificing all enjoyment for the sake of hoarding cash. If you do find yourself without the funds to pay an emergency expense, you’ll need to start cutting back where you can by reducing, pausing or eliminating.
Discretionary spending on new clothes, restaurant outings and indulgent services or subscriptions need to be assessed and excised in times of financial burden. If necessary, temporarily downgrade your cell service or insurance needs and start penny-pinching at the grocery store.
Pay the Minimum on Credit Cards
Not having to rely on credit cards or high-interest loans will help you avoid adding to your debt if you have an emergency fund. But what about existing debt that still needs paying off? While personal finance guru and popular radio and podcast host Dave Ramsey would rather you attack your debt with “gazelle intensity,” a different approach is required when you find yourself in an emergency without emergency funds to cover it.
If you’ve depleted your emergency fund, Ramsey Solutions suggests, “The best thing to do is only make minimum payments on all your debts for a while and focus on covering your ‘four walls’: food, utilities, shelter and transportation.”
Negotiate Payments
There should be no shame in trying to renegotiate payments to banks, insurance companies and car financiers in times of hardship. According to Equifax, it’s important to talk directly and honestly with lenders to find the right options for debt relief. This is especially true since the pandemic, as more banks and creditors offer assistance to clients.
Speak with your lenders to see if you can work out a short-term repayment plan, a reduced interest rate, or a debt consolidation recommendation for your personal, auto and home loans. If necessary, think about applying for a mortgage forbearance as you recover financially.
Find Extra Income
To quickly raise some emergency funds, you’re going to have to turn possessions into cold, hard cash or take on additional work. There is a market for just about anything, so jump on Facebook Marketplace, eBay or community boards and get rid of any unused or extra TVs, electronics, furniture, children’s toys, workout apparel or other items.
To earn extra money to pay for unexpected expenses above and beyond what your emergency fund can cover, you may need to consider taking on a part-time or contract job or starting a side hustle without too much hassle. Forbes suggests no-money side hustle startups like print-on-demand services, freelancing, pet-sitting and dog walking, tutoring and coaching and content creation, but there are seemingly endless ways to make money if you leverage your skills and imagination.
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