Conquer Unexpected Costs: The Ultimate Guide to Budgeting for Sudden Expenses
Surviving on a budget is not everybody’s cup of tea. With a limited amount of money to be spent, it might get frustrating to cover the expenses. Moreover, there is always a risk of some uncertainties or emergencies that may end up at any point in time. For instance, a crucial appliance around the house fails, or some medical uncertainty.
This is where the need for emergency funds is realized the most. However, even if you have some savings in your emergency funds, it is still difficult to manage if you are not good at budgeting. Therefore, this article will shed some light on how savings and budgeting can be your true companion in such tough times.
Setting Aside Money for a Rainy Day
Do not get confused by the name rainy-day fund. In financial terms, any period of time when the expenses are tough to manage is called a rainy day.
We should all have a rainy-day fund – though this can be easier said than done after weathering the inflation and high-interest rate storm over the last two years. 2022-2023 and even now may be a time of crisis we’re trying to cover. Since, in a current economic scenario where major economic markets around the world are either falling into recession or facing record inflation, savings are a great relief for people.
Even so, we should be setting aside money into a high-interest bank account to cover at least one month to three months of everyday expenses in case we’re laid off. Homeowners are encouraged to save between 1% and 4% of their home’s total value to be set aside for repairs and maintenance, including appliances and fixtures.
To easily calculate the amount of emergency funds that you must have handy yourself, you can use the following formula:
Emergency Fund = Total Monthly Expense * 6
Money Borrowing Apps
Some banks’ credit union apps or third-party apps can give you access to quick cash advances that you can access instantly. In some cases, you will not have to go through a credit check to be eligible for these apps, which means they could be ideal for people with bad credit.
However, in such cases, you must carefully read all the terms and conditions that are served by the lender in exchange for the loan. Only go for the borrowing when you can afford its repayment for the given period of time.
POINTS TO LOOK AT WHILE PICKING A MONEY-BORROWING APP
- Credibility and Security
- Interest rates and fees
- Repayment terms
- Eligibility criteria
- Customer support of the app
Payday loans
In a pinch, you potentially be able to turn to what’s known as payday loans. Payday loans, also known as quick cash loans, payday advance loans, or small cash loans, are small loans ranging between $100 to $500, when some lenders can authorize $1,000 or slightly more.
Payday loans cover unforeseen expenses until their next paycheck, usually every two weeks or month. Unsecured loans allow you to borrow without pledging collateral.
Shorter durations than consumer personal loans and amounts under $1,000 mean lenders will charge greater interest rates than credit cards. Be warned: payday loans have been known to impose 400% APR interest rates. This depends on state to state – and you really have to figure out if you have no other choice before taking out a payday loan. Know the requirements and your obligations before applying.
Other alternatives
Alternatives to these loans are personal loans, which are much lower in interest but are likely to have a higher borrowing floor and complex application process (e.g., days when the above take minutes.) You can also try to use a credit card or a credit card cash advance, though these can carry high fees and eyewatering APRs of above 25%p.a. You can also pawn items or borrow against your auto title, but this carries risks of repossession if you are delinquent in your payments.
Whatever method you choose, carefully consider the risks and costs associated with accessing quick credit or dipping into your emergency fund. Do your research and get advice from a professional if you’re ever unsure.
Final Words
Maintaining a proper budget and keeping your savings handy in times of uncertainty is the biggest relief. With proper planning and knowledge of the market, you can financially sustain yourself in any difficult times. Alternatives discussed above were the best choices to go for when you are seeking for some funds in such an unfortunate scenario. If you found this article helpful, share it with your friends and family, too.
