At some point in time, almost everyone would experience or know someone who has experienced financial difficulty.

Financial emergency comes in all forms – sudden shortfall in cash for that purchase you had already committed to make, falling short of funds for a scheduled rent repayment, or, in the more serious cases losing a job or having to come up with money to pay for medical expenses. A financial emergency can come without warning and can strike anyone.

In these instances, it is important to be prepared. There are some simple guidelines that anyone can work through to reduce the stress that a shortfall in finances can cause.

Examples of financial emergencies

There are several events which can cause a financial emergency. Often people don’t consider how they would recover from an event like this until the situation occurs. Some examples are:

• Loss of Job – A loss of a job is quite common in the current market condition. This causes a serious financial stress particularly if the notice period given is short. One of the ways to plan for this is to ensure that at least one month of salary is saved for that rainy day. Once it happens, take advantage of support that is available to you, like unemployment benefits.
• Divorce – This is costly in a number of ways – emotionally, financially and physically. It is important to resolve the financial split such that all of these types of stresses are minimised. Remember, the lawyers will also take their portion too.
• Bankruptcy – Whether personal or your company going bust, bankruptcy will bring financial distress. Restructuring debt and asset sales are few of the stressful processes undertaken to raise a portion of the cash to pay off the creditors.
• Retirement – When a person moves into retirement a number of considerations will come to the fore. A lifestyle change is critical in this discussion. This is particularly so if the spending habits while in the workforce are far greater than what is affordable under a pension plan.
• Injury – If someone in your family is injured and can no longer work, this can have serious implications for your financial position. This is particularly so when debt such as a mortgage was taken with both spouses’ incomes taken into consideration. In this situation you would need to consider changing your lifestyle and spending habits. A sale of assets may also be necessary.

Steps to follow during a financial emergency

Prepare

If you’re prepared in advance for a financial emergency, it won’t be such a disaster when it happens. Keep an emergency fund which will cover a few month worth of expenses. This gives you time to get back on track.

Whatever you do, don’t panic!

Needless to say, panicking hardly ever works. Worse still, the decisions made under a state of panic could exacerbate the situation. Step away from the situation, which may put everything into perspective, and determine what has caused the financial emergency.

Phone a friend

They are there to help, so why not use them. Discussing a problem with a friend can clarify the next steps forward. Your friend can also check up on you as you take the next steps.

Organise your priorities

After stepping back from the situation and getting assistance from a friend, hopefully you can see the priorities through the clutter. It is important to eliminate the non-essentials. Important aspects to consider are food and shelter – the other priorities come later. Those jeans can wait when repayments on the loan are due!

Be practical

When the odds are against you, remember not to count on luck. If the odds are 1 million to one, then even if you buy 1 million lottery tickets there is no guarantee of winning the lottery! Be practical and think logically. Managing expectations is important for emotional wellness during this stressful period.

Move forward

Some people come to this step quite quickly, while others follow a process of thought and action before reaching this stage. Either way, it is important that the next steps are clear and taken in a timely manner. If you need the assistance of a loan to help with a financial emergency, contact us.