How to keep cool in a financial emergency

How to keep cool in a financial emergency
About this post

From the major to the minor, financial emergencies are a part of life.

Whether it’s an unexpected bill, a direct debit you forgot about that’s higher than your bank balance or urgent repairs needed on your car or home, such emergencies can leave you scrambling to cover the costs and plunge your bank account into the red.

Keeping your cool in a financial emergency is all about being prepared.

“The more prepared you are, the less of an emergency it will be,” Fraser Jack, owner of 123 Financial Services, said.

Be prepared

The old-fashioned concept of a jar system is the best way to be prepared for financial emergencies, according to Jack.

“Only instead of a jar, it’s bank accounts,” he said.

His advice is to have separate bank accounts for discretionary spending (lifestyle necessities such as dining out, entertainment, clothes and the like), savings (a high-interest savings account is ideal for this) and another account for fixed bills.

Looking at your previous bills and statements should help you determine a safe amount to keep in your bills bank account. For example, if you get paid weekly, calculate how much your bills cost you on a weekly basis and deposit that amount into the relevant bank account.

Keep in mind, however, that the costs of amenities and bills can go up at any time, so factor in an extra buffer.

“We get caught out on these bills if we don’t pay attention to them,” Jack said.

Related links

Be proactive

If you do find yourself in the midst of a financial emergency, the best response in to be proactive.

“If you are caught out and don’t have the money to pay a bill, my suggestion is don’t bury yourself in the sand,” Jack advised.

“Be proactive and call the person or company you have the bill with to work out a payment plan before the due date, and before they call you.

“Most people will be happy if you are proactive about paying a bill.”

Be extra-safe

If you are likely to forget about upcoming direct debits and worry about getting stuck with not enough funds in your bank account, it may be a good idea to apply for an overdraft facility. Banks provide a handy personal overdraft facility on most transaction accounts to ensure you don’t get caught short.

The amount you can access can vary from $100 to tens of thousands of dollars. While the facility can be free, you will have to pay interest on any amount you draw on so as always, ensure you do your homework.

Like any good contingency plan, avoiding a financial emergency will come down to having a solid plan in place for the ‘just in case’ moments.

Related links

This is an information service. By browsing on the website and/or using our search tools, you are asking RateCity to provide you with information about products from multiple financial institutions. We will try to show you a range of products in response to your request for information. The search results do not include all providers and may not compare all features relevant to you, for further details refer to our FSCG. The rating shown is only one factor to take into account when considering these products. We are not a credit provider, and in giving you product information we are not making any suggestion or recommendation to you about a particular credit product. If you decide to apply for a product, you will deal directly with a financial institution, and not with RateCity. Rates and product information should be confirmed with the relevant financial institution, and you should review the PDS before you decide to purchase. See our terms of use for further details. This advice is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you.