Too many people think they won’t have a financial emergency until they have one. Emergencies are not planned. It’s something that happens out of nowhere. Therefore, It is much more important than ever to prepare for them because life happens to you quicker than you know.
In March 2022, I got in a car accident. The driver failed to yield at a stop sign. As a result of the car accident, there were so many things that I had to do. Even a simple thing like buying another car was very stressful because used car prices have skyrocketed through the roof in 2022.
The Manheim Used Car Index says so. And on top of that, I had to move to another completely new city as a result of a change in job. Then we got a record inflation reading in the past 40 years. Well great! You don’t get a warning a financial emergency is going to happen.
It just happens. And there’s nothing you can do about it. You just have to bite the bullet. They’re not going to happen when you are the most financial stable, either. They’re going to happen when you least expect it and when you least want them to.
When you don’t think it will happen because you went through life just fine the past decade is when it will most likely happen. I was perfectly OK for the past six years before financial emergencies began pouring down. Then everything came crashing down on me all at once.
What is a Financial Emergency?
A financial emergency is an emergency that requires money to fix and/or solve. Much like the emergency room for hospitals, this is an emergency room for your bank account and wallet. It can be for a wildly variety of reasons such as getting into a car accident or having to move to another city.
Or it can be for a simple thing like a medical emergency that needs you to be in the hospital for a number of months. This is exactly why emergency funds are very important. You just never know when things are going to change. Things have a way of changing quickly.
The bear market of 2022 triggered many people’s financial emergencies. Many people who followed the financial independence, retire early movement ended up going back to work. Life just became much more expensive and they couldn’t deal with the stress of inflation.
At the end of 2021, I thought I was financially fine until I went through this harsh bear market. I thought, “even if the market declines an extra 10%, I’ll be fine”. Which was completely true. If the market only declined 10%, I WOULD have been fine.
However, we declined a good 23% in just six months. Who knows if it’ll decline even further? Financial emergencies happen when you least expect it and they happen quicker than you would like it to happen. It’s still a long road ahead for me before recovering my finances.
2022 may just be a recovery year to prepare for the next year.
My Financial Emergency Story
One evening, I wanted to see a girl and go on a date. So I got in my car at around 10:30PM and got on the highway to get there. Lo and behold, there was a wooden pallet right in the MIDDLE of the highway. My tire blew out immediately and I swerved.
Luckily, there was no one to the right or left of me. Therefore, I relatively came out unscathed. There were about another dozen cars whose tires blew out as a result of the pallet. Tire places like Discount Tire must’ve had a FIELD DAY with the flood of new customers coming in.
The end result was that one single tire that blew out ended up costing me an extra $300. For a single tire?! And it’s not like I had a lot of bargaining power, I needed a car to get to work and the like. So when I tried to negotiate, I got shut down.
The accident happened when I least expected it and when I least wanted it to.
It really doesn’t feel good when it happens to you. You think it won’t happen to you until it does. And it could’ve been much worse. Imagine if two tires had to be replaced. That would have been very bad. Losing money is hard but losing money when it’s not your fault is even harder.
The car accident I’ve gone through in March 2022 and getting the flat tire scarred me. I don’t want to spend money on anything anymore. I generally thought that I was financially stable but that didn’t turn out to be the case in any way whatsoever. It made me much more careful.
How to Deal With a Financial Emergency
One way to deal with a financial emergency is to SMASH that social share button and post to your favorite social media! You never can prepare for these things so it’s better to be more aware of it beforehand.
So with that said, let’s go over how you can deal with money emergencies!
1) Prioritize the Financial Emergency First
The first thing I did was I wanted to pay down all of my debt and live a debt free life. People don’t know how freeing it is to not owe anything to anybody in the world. It feels amazing. Therefore, living a debt free lifestyle is crucial.
Then after taking that step, you can go towards padding up your savings account for any emergencies that will happen. Yes, it’ll only earn something like 1% interest. However, this isn’t about making the most amount of money possible. It’s about making sure you have a 100% chance of survival.
Financial emergency should be your number one priority. Getting rich is a nice to have. Having the funds necessary to combat a financial emergency is a necessary to have. Murphy’s law doesn’t just go away because we think it can never happen to us.
2) Have a Good Emergency Fund in Place
Many people in 2020 and 2021 thought they should invest their emergency fund. Yes, it worked well for those years. However, the thing about investing is that it always works well until it doesn’t. If you invest your emergency fund, you don’t have an emergency fund.
Just don’t do it. Yes, you may have a higher return over the long term. However, you don’t know exactly how long the long term takes to arrive. It may arrive in one year or it may last 2 decades. Whatever it is, an emergency fund is for a short term financial emergency, nothing else.
It’s for your own financial protection, not to help you build wealth and move up higher in the world. It’s similar to purchasing insurance. Except this time, there’s no intermediary holding your cash until you have an emergency and file a claim. You own the money 100% outright.
3) Review Your Insurance Coverage
Some people do not have full coverage for their cars. That’s just not right. Insurance, even though I don’t like to admit it, is a 100% necessity to your life. People don’t think they need insurance until they get into an accident and they have to deal with the intricacies of insurance claims.
Insurance is wildly complex and cumbersome not as accident but because the companies want to make the consumer give up their claim. They want to whittle them down until they give up. That’s how insurance companies remain a big business and people get less than what they deserve.
A good insurance coverage has the potential to absolutely cover you in case of a financial emergency. Health, auto, dental, and the like are crucial things for you to have. You want to be protected in case of emergency. It’s money well spent.
4) Learn from This Experience
Whatever financial emergency event you went through, if it affected you badly, learn from this experience going forward. Preparation is key for a financial emergency. It’s time to keep that savings rate up, pad up your savings accounts, pay off your debt, and be financially stable.
After my car accident, I felt immensely financially unstable and unable to enjoy life to the fullest. Let me tell you, it just doesn’t feel fun. You don’t want to go through the same thing again, especially if you could’ve easily avoided it for the next time.
Emergencies cannot affect someone who is prepared. I learned just how fragile my life is and that anything can happen. It’s especially bad if that bad thing is caused by someone else through no fault of your own. You think it won’t happen to you. Then it does.
5) Save Up
Pad up your savings accounts. Add more money to your checking amount. Whatever money you think you need, it’s a good idea to pad it up even more. It’s not about making more money and getting the wealthiest you ever possibly can.
It’s about protecting you and your family in case future financial emergencies happen. I can guarantee that you WILL go through at least ONE financial emergency throughout your life. I’ve gone through multiple and I’m not even in my 30’s!
The protection and peace of mind you get from saving money will be worth more than an extra $1,000 going to your net worth at the end of the year. Money isn’t everything but not having money is. When you feel like everything is spiraling out of control, that’s when you lost.
6) Accept the Situation
You may be in a financial emergency state that you’d rather not be in because of the wrongful actions of someone else. However, you have to deal with it. No matter what, you are entirely and fully responsible for coming out on top no matter what the situation.
No excuses. Therefore, it’s up to you to prepare for the next crisis that could happen. No one is going to make you whole for you, you will have to go out and make yourself whole. On your own. Whether it’s through negotiation, or earning more money, or through whatever means necessary.
You’re not the only one to go through hardships and you won’t be the last. What separates the winners from the losers is how they react to the hardships they face throughout life. It may take months or even years before you get back on your feet but it’s worth a try.
7) Manage Expectations
A financial emergency may not be fixed in a matter of days. Even if the money part is solved, there is a lot of trauma that has to be resolved. it may take months, or even years. For me, it’s taking 8 months at a minimum in order to feel whole again. I still don’t feel fine or great.
You have to manage expectations and remove the optimism that’s embedded in your DNA. Optimism can be helpful but can lead to disappointment. Expectations are what ruins your recovery time. Because if it takes longer than you think, then you become even more depressed.
The psyche and the feeling of getting back to normal just doesn’t happen overnight. It takes time. Building an emergency fund takes time, padding up your savings take time, and even feeling normal takes time. Manage your expectations on when your recovery will happen.
A Financial Emergency WILL happen
Too many think that a financial emergency is rare. That’s not the case at all. They happen more often times than you think. Accidents happen all the time because we’re humans. Tiny financial emergencies may not bother you. But there’s always a big one lurking in the corner.
When they happen, they make you feel powerless, like you have absolutely no and zero control over your life. You start to blame yourself for a lot of things even when it wasn’t your fault. You may have been protected or have been doing just fine over the past couple of years.
Then the one year happens where things come crashing down. Your world just may crash down when you least expect it. It may just be the most inconvenient time for it to happen, too. I thought I was prepared for financial emergencies then I found out that I wasn’t.
It hurts when it happens. Physically, emotionally, and mentally. Then it may take months, and if not years before it even starts to make you feel better. A financial emergency puts a damper on your mood. Trust me, it’s putting a damper on my mood.
You can forget about getting rich if you are not 100% and feel completely protected from the chaos of the outside world. This is the most basic step to get you to build wealth. You can’t skip over this step because it is far riskier than any other decision you’ll make.
How to Deal with a Financial Emergency Shortlist:
- Prioritize the financial emergency first
- Have a good emergency fund in place
- Review your insurance coverage
- Learn from this experience
- Save up
- Accept the situation
- Manage expectations