When a financial emergency strikes, your whole world can fall into a tailspin. While the nature of the emergency can vary, it can inflict monetary and personal stress no matter your financial situation. From paying for flood remediation to an unexpected car repair, a surprise bill is never a welcome sight. But there are ways you can prepare that may help lessen the impact of a costly emergency.
Preparing financially for the unexpected is the most important step you can take. While building a budget, be sure to set aside emergency funds so you have a safety net if needed. If you have tracked your monthly expenses carefully, you should be aware of the amount of money you’re spending every month. Now, triple that figure. Maintaining three months of reserves in a savings account is the recommended minimum when it comes to establishing an emergency fund.
Home Equity Line of Credit
Maintaining a well-stocked emergency fund doesn’t guarantee that you’ll be able to afford every emergency life throws your way. If you encounter a situation that goes above and beyond your three-month reserve, accessing your home’s equity to fund unexpected repairs and payments is a viable option. The difference between your home’s current market value and any outstanding loan balances, or equity, is an emergency fund of sorts. A home equity line of credit may be a good option for financial emergencies because it’s flexible and allows you to borrow money only when you need it, rather than taking out one lump sum as with a home equity loan. This can be beneficial if your costs are constantly changing and the overall total may be unknown.