How To Prepare For Financial Emergencies and How to Manage it?

Have you ever experienced a financial emergency? Did it make you feel unprepared or overwhelmed? 

Financial emergencies usually happen unexpectedly. They disrupt our lives making it difficult for us to feel like we’re in control. Losing your job, medical emergencies, damage to your home, increase in rent and travel expenses are all examples of financial emergencies. The sudden expense and loss of income is either a one-time event or leads to ongoing challenges. During the 2020 global COVID-19 pandemic, multiple people lost their jobs, faced salary reductions, and had urgent medical crises. This is an example of an unexpected financial emergency. 

Even though we don’t have the power to predict such situations, we can control how we  choose to prepare ourselves for them by taking charge and creating a solid financial crisis management or an emergency fund. 

So how do you effectively plan for a financial emergency?  

Make a Financial Crisis Management Plan:

A financial crisis management plan is important as it helps to avoid financial losses, preserves financial stability, reduces stress and anxiety, and prevents setbacks that could derail us from reaching our long-term financial goals. 

The steps that you should take while making your financial crisis management plan are:

• Assess your Financial Health: Assess your financial health to understand your current financial situation clearly as it allows you to build  a more effective and tailored plan. Lxme has its very own Financial Security Quiz which gives you a comprehensive view of your financial health in only 2 minutes.
• Identify your potential risks: Identifying possible financial emergencies such as losing your job or falling  sick can help you to make a more tailored plan for yourself 
• List your essential expenses: Make a list of your essential vs non-essential expenses. Examples of essential expenses include rent, utilities, healthcare, groceries, and insurance, and examples of non-essential expenses include entertainment, dining out, travel, and luxury goods.
• Insurance: Review your insurance coverage such as health, life, and vehicles insurance.

Building an Emergency Fund: 

Emergency fund planning will act as your safety net and is crucial to mitigate the immediate impact of a financial crisis. It provides you with necessary resources that you require to handle unexpected costs. 

Below are  steps to create emergency fund:

• Set your target amount: for a constructive emergency fund, aim to set aside 3 to 6 months’ worth of essential living expenses. This will make sure that you have enough to cover costs like rent, utilities, food, etc. Start planning with an emergency financial calculator.
• Save your money: Lxme’s Savings Challenge motivates you to save a set amount of money daily, which can be allocated towards your emergency fund.
• Lxme’s Emergency Fund: The Lxme Emergency Fund is a dedicated investment plan that helps you build a financial cushion specifically for emergencies.
• Review: Emergency fund planning also involves reviewing your emergency fund annually and adjusting it as needed. 

What To Do During a Financial Emergency:

Even with ample planning, emergencies can still cause disruption. Here is how to effectively manage a financial emergency:

• Judge the situation: Stay calm and assess the situation, determine the extent of the emergency, the costs involved, and how long you think it will last. 
• Revisit your budget: Evaluate your budget and cut back on expenses that are non-essential.
• Use your emergency fund: Prioritize urgent, essential costs and avoid draining the emergency fund unless it is necessary.
• Seek Financial Assistance if necessary: You can turn to Lxme’s 1:1 session for money guidance or emergency fund planning from experts. You can also become a part of Lxme’s community to discuss money matters with like-minded women in a safe space.

After a Financial Emergency:

Once the situation is under control, think about how you will recover and rebuild from it. You should also focus on strengthening your financial resilience for any crisis that may arise in the future.

• Review your financial crisis management plan: Identify  gaps or areas for improvement in your existing financial emergency plan.
• Replenish your emergency fund: If you used your emergency fund during the crisis, prioritize replenishing it as soon as possible by making small and regular contributions. 
• Consider additional insurance: Depending on the type of crisis you just experienced, you can explore if you require any additional insurance coverage.

Conclusion

Even though financial emergencies are inevitable, building the right strategies and having a financial emergency plan in place will allow you to safeguard your financial future. Creating a financial crisis management plan, having an emergency fund will help you to confidently face unexpected financial emergencies that may come your way. 

Be proactive today to prepare yourself for any unexpected circumstance and to set yourself up for long-term stability. With a strong foundation, you will be able to tackle whatever life throws your way and emerge stronger on the other side. Take charge of your future!

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