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.
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.
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.”
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.