No matter how prepared you think you are for life’s emergencies, unfortunately things happen that are beyond your control. Sometimes the emergencies are minor inconveniences and sometimes, they are big headaches that cost major dollars. Usually, emergencies that require a nice chunk of change are rare, but when they happen (and they do happen), they can wreak havoc on your finances.
Before these major emergencies happen, it’s best to sit down and make a roadmap for your plan of action to handle the emergency. Having a plan ahead of time can keep you from making an irrational decision in a panic. Everyone’s plan of action will not be the same due to different financial circumstances.
My plan of action to handle a financial emergency would be as follows:
- Emergency Fund. Having a fully funded emergency fund can save you from a lot of headaches and worry. It’s easy and quick to access your money and usually without any fees. And the best part, you won’t pay any interest since you are using your own money. I currently keep my emergency fund in a money market account at my local credit union.
- Irregular/Sinking Fund/Random Fund. The second line of defense against emergencies would be to hit this fund. This is the savings account I set aside to cover those irregular expenses such as auto insurance, auto repairs, home repairs and to cover those small emergencies that may pop up. Just like my emergency fund, this fund is kept at my local credit union but in a regular savings account.
- 401k. …