by Chelsea Springli 
Despite all the planning and preparation, something will inevitably go wrong. Your dishwasher may break. Your car may need repairs. A health emergency may arise. Life happens, and sooner or later you’ll be faced with an unexpected expense. That’s why it’s so important to have a financial backup plan ready in case a risk turns into reality.
The key to overcoming unexpected situations is to be as prepared as possible. By responsibly managing your money and credit before you need it, you’ll have more working for you when the unexpected comes.
Here are a few tips for when you’re hit with the unexpected.
Plan if You Can
You may be able to predict the future with a quick look back in time. Review last year’s expenses and flag any transactions that were out of the ordinary. Build those expenses into your current budget. By following a budget that reflects your actual spending, you’ll create the capacity to save for an emergency fund.
We recommend having at least $1,000 in an emergency savings account to use when needed. Use our free online calculator to estimate how much you should save based on your financial situation. We have another blog to teach you how to create an emergency savings account. Be sure to read these steps to create an emergency savings account.
Think Before You React
Is the new cost a need or can it wait until the next payday? What are your options for getting the extra cash you need now? Slowing down and thinking through your options may provide a better solution.
Here are some examples:
- Can your hair appointment be delayed for another two weeks? Even a month?
- Does your car need that scheduled oil change or can you wait until your paycheck comes next week?
- Is your credit score high enough to withstand a hit when you apply for another credit card?
Don’t Neglect Your Credit
Even with your emergency fund (if you don’t have one, it’s never too late to start!), you may need more cash. It’s moments like these where you’ll thank yourself for preserving your credit. If you need to borrow, good credit will help you get a better interest rate. Learn how to check your credit score.
Building a strong credit score is possible by making at least the minimum monthly payments on time. Any missed, late, or payment below the minimum will damage your credit score. By building these payments into your budget, you can make sure you have the funds you need to cover these expenses.
Put Tools in Your Toolbox
When you’re facing an unexpected cost, reach into your financial toolbox and pull out the tool that’ll solve the problem. For many, that tool is a Home Equity Line of Credit (HELOC). A home equity line of credit is continually reusable and has an interest-only minimum payment. It’s a great solution for a short-term financial need if you have a plan in place to manage payments. Remember: Don’t take out more debt if you’re already struggling with debt.
However, part of your credit score is determined by how much available credit you have. In these situations, it’s best to have credit available, just not used. This is another reason why a Home Equity Line of Credit is a great tool. It can create a large amount of available credit that you may or may not need to dip into in emergencies.
Reflect on Your Goals
When you begin to make meaningful changes to your finances, it’s easy to go all in and start off too aggressively, like deciding you are going to save 50% of your income each month, never go out to eat again, or cut up all our credit cards. While this ambition is admirable, you may not be able to keep up the pace. Make sure your goals are realistic and leave room for important things like emergency savings. After all, what good does it do to make a bunch of financial changes that only last a few weeks?
Consistency is crucial to meeting your goals. Start small to give yourself some little wins that will last. Gradually make more sustainable changes to your finances and lifestyle to reflect your goals.
Let Us Help
One of the biggest benefits of being an Alltru member is that we’re on your side and here to help you through life’s planned and unexpected events. Take the next step and contact us for more information. We can help!
