No matter how much you plan for things in life, the unexpected can happen at any time. And along with throwing a wrench into our plans, they often bring financial emergencies with them as well. Those who have emergency funds may fare better in these situations. But only 28% of Americans have emergency funds, so for those who don’t, a financial emergency may hit harder.
But not everything is a financial emergency.
What Constitutes a Financial Emergency?
A financial emergency is one of those unexpected life events that puts you at risk from a financial security position. Usually, they impact your ability to earn income, either directly or indirectly. Or, they put your health and/or wellbeing in jeopardy. And this can additionally impact your ability to continue earning income.
Here are a few examples of things that are not financial emergencies:
- Planning a wedding
- Attending a wedding
- Purchasing birthday or holiday gifts
- Taking a vacation
- Putting a down payment on a home
- Remodeling your home voluntarily
- Replacing non-essential electronics
There are a few reasons none of the above examples qualify as financial emergencies: they’re either not unexpected, don’t impact your health, or they don’t impact your ability to earn income -- or a combination of all three.
Now, let’s look at the five most common situations that are financial emergencies.
1. Losing Your Job
Losing your job can be devastating in more ways than one. While you may be working through feelings of grief regarding the ending of a particular chapter in your career, the financial impacts can be even more difficult.
When you lose your job and your main source of income, it can become hard to keep up with everyday living expenses. But you still need to pay your mortgage/rent, pay your bills and utilities, buy groceries, and more. Using your emergency fund to help cover these expenses until you get back on your feet is the purpose of having saved up in your emergency fund in the first place. It’s there to help you when times get tough.
2. Medical Emergencies
Medical or dental emergencies are a common type of financial emergency. Even if you pay a monthly premium for health care coverage, unexpected health expenses can add up to a significant cost. This is even more true if you don’t have health insurance.
Medical or dental emergencies might include illnesses, surgeries, accidents, or treatment plans for conditions such as cancer. And not only will you need to pay for the costs of these services -- there could be implications on your household income if someone is too sick or injured to work for a period of time.
But keep in mind that medical emergencies can impact any member of the family, even if they don’t contribute financially.
3. Emergency Car Expenses
Depending on your personal situation, a broken-down or wrecked car may impact you more or less. If you live in a city with a strong public transportation situation, you may be able to hold off on fixing the car until you feel more financially stable. Or, if your family is a multi-car household, you may be able to carpool with your spouse or find another arrangement that works for you.
But if you depend on your car to get you to work each day, you may risk losing your job if you’re suddenly without a reliable source of transportation. In this case, getting your car fixed would be a financial emergency. You could stand to lose more from a financial standpoint if you lose your job than what you’d spend on getting your car repaired.
4. Emergency Home Expenses
Even if you don’t work from home, there are some situations in which you may need to dip into your emergency fund due to necessary repairs to your home. This doesn’t mean remodeling the kitchen because you want granite countertops -- this means that a tree fell on your roof during a storm, for example.
Natural disasters are fairly common, and depending on where you live, your likelihood of coming face-to-face with one may be more or less likely. Whether it’s a storm, fire, flood, tornado, hurricane, or something else, the damage caused can endanger you and your family’s safety. Unfortunately, not all homeowners insurance policies cover these types of damages.
Regardless, it’s important to get it fixed as soon as possible, even if it means dipping into your emergency fund.
5. Death in the Family
A death in the family is something no one wants to experience. And not only can it affect you emotionally, but it also can have significant impacts on your financial situation.
For example, if your spouse were to pass away unexpectedly, you would be losing their income as well. Any financial responsibilities you have -- from mortgage payments, to college tuition for the kids, to saving for retirement -- suddenly become a burden you have to carry alone. Plus, there’s the matter of funeral services and burial, which are very expensive as well. However, if your spouse had life insurance, the death benefit payouts could significantly ease or eliminate all of these financial burdens.
In some cases, even traveling to attend a funeral may constitute a financial emergency. It depends on your personal relationship to the decedent.
Plan for Your Financial Future With Academy Bank
Ready to build up your emergency fund and continue your good financial habits? Academy Bank is by your side. We offer a variety of savings and checking accounts, as well as other products, to help you live your best financial life -- now, and in the future.