Emergencies and Emergency Funds Usually Do Not Match

Conventional wisdom holds that, before you start devoting a line in your budget to paying more than the minimum payment on your debts, you should first build an emergency fund. The problem with expecting the unexpected is that it is hard to know which unexpected event to prepare for. The generic advice about emergency funds tends to conflate two concepts. There is the emergency which is a bummer and the emergency which is a catastrophe. A bummer is an unexpected expense that causes you to incur financial losses in the hundreds of dollars, such as the malfunction of a vehicle or household appliance. A catastrophe is something that upends your entire life, such as a loss of employment or a medical diagnosis that will affect your health for years to come. If you have an emergency fund that can cope with a bummer, you are in a better position than most, and if you have one that can weather a catastrophe, you are among the lucky few. Both scenarios are much harder than they seem, though. If your emergency fund was no match for the recent string of emergencies that have come your way, contact a Philadelphia debt relief lawyer.

Misfortunes Never Happen One at a Time

The fact that things cost more than you expect them to no longer qualifies as an emergency; it is the new normal. Almost every item on the supermarket shelves or on the menu of ostensibly affordable restaurants is noticeably more expensive than it was last year. The old line of fearmongering from before the COVID era, that most Americans cannot afford a $400 emergency expense, is still true, but today $400 barely buys a tank of gasoline and a grocery haul. By all means, start paying off your credit card debt after your emergency fund hits $1,000, but emergencies follow each other closely, more quickly than you can rebuild your emergency fund. One $400 emergency follows another; three of them within a few pay periods, and your emergency fund will be gone sooner than you think.

When Job Loss Turns Into Involuntary Retirement

A savings account with enough money to cover three months of expenses can make you feel financially secure, and if you lose your job, you will be glad to have it. That emergency fund can buy you time, but it cannot solve your joblessness problem. As soon as you find out that your last paycheck from your job will be arriving soon, it is time to build a long-term strategy that prepares for the worst. That might entail moving in with family, settling your debts with creditors, and other cost-cutting and debt relief measures. You should keep looking for a new job until you find one, but you should build a budget that assumes that your next job offer is not coming anytime soon.

Contact CONSUMERLAWPA.com About Coping With a Financial Emergency

A Philadelphia consumer law attorney can help you if you have an emergency fund but don’t know what to do after it runs out.  Contact CONSUMERLAWPA.com to set up a free, confidential consultation.

Source:

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