What to do when you have an emergency

AmbulancePhoto courtesy of Fryderyk Supinski

Emergencies happen. We can minimize our exposure to incidents as best we can, but there are some things that we can’t control. That’s why they’re emergencies.

We can debate what counts as an emergency. For example, I don’t believe wear-and-tear car repairs are an emergency, because if you own a car, you know that you’re going to need to repair it. You don’t know when, of course, but you know that you will. If something isn’t unexpected, is it an emergency?

But let’s say that, for whatever situation you’re in, you’re in an emergency. It’s going to cost money, and you need to pay for something unexpected.

What do you do?

Start the emergency early

You can do yourself a big favor by starting to plan your response to emergencies right now. Having a plan for your emergencies before they happen is key. And this is because the last thing you want to do when you’re dealing with an emergency is figure out how to handle it. Form a plan now, and put it into action when necessary.

It might be helpful to divide up emergencies by their sizes.

Here are some examples:

  • Less than $500
  • $500 – $1000
  • $1000 – $10000
  • Greater than $10,000

Think about your current situation and ask yourself what you’d do if you found yourself needing to pay for something in one of these sizes.

Luckily, the larger ones happen much less frequently than the smaller ones. I can’t think of a situation where I’m being asked to pay $10,000 with no advanced warning and no time to figure it out. But those smaller ones can and do happen.

This might be obvious

If you have enough money in your emergency fund to pay for the emergency, pay for the emergency out of your emergency fund.

“But Mike, then my emergency fund will be lower!”

Yes, it will. That’s the point.

We can get so focused on the sense of security that comes along with having an emergency fund that we forget that the emergency fund is there to be used. Not for fun, not for everyday things, but for emergencies.

By all means, use the emergency fund.

What then?

After you use money from the emergency fund to pay for the emergency, your next step is to restore the emergency fund as quickly as possible.

If you had to spend $700, then you “owe” the emergency fund $700. This means stopping other savings funds, retirement funds, everything, until you get back to your previous level. Urgency is important here!

Once you get to your target level, you can continue with your normal plan.

Though, if you still have debt, maybe you should channel that urgency into just paying off your debt instead. Think how much easier it will be to build up your emergency fund when you have no debt payments. (Spoiler alert: Much faster.)

 

Mike Pumphrey

Mike Pumphrey

I'm the founder and author of Unlikely Radical, a site to help people succeed with money, achieve their goals, and live intentionally.

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Mike Pumphrey
Posted on September 15, 2016