Tuesday, December 29, 2015

Think Tank Tuesday 12/29: Are You Prepared For A Financial Emergency?

When it comes to managing your personal finances and your household budget do you include planning for emergencies? Unfortunately, when it comes to unexpected emergencies many households take a reactive approach (acting after a disaster has hit) instead of proactive approach (planning to deal with a disaster long before one hits). The difference in these two approaches is like night and day and in regards to your finances can determine whether you add more debt to your current bills.

Every household should take proactive measures to help mitigate the amount of debt they incur due to emergencies. This is one reason you should include an emergency fund in their budget. What is an emergency fund? I'm so glad you asked.

According to Miranda Marquit's article Emergency Fund vs. Rainy Day Fund: What's the Difference?  an emergency fund is "...what you’ll need to cover expenses if you are unemployed for a few months. It may also be used if you get sick and have unexpected medical bills.”

You'd think being prepared for future emergencies would be common knowledge but you may be shocked to know that nearly half of Americans wouldn't be prepared to handle an emergency with a significant expense attached to it:

 [According to the Federal Reserve's 2014 Survey of Household Economics and Decisionmaking, 47% of Americans say that they wouldn't be able to cover a $400 emergency expense. That lack of preparedness could lead to maxing out credit cards, taking out expensive short-term loans, or worse.source

What are your thoughts? Have you included an emergency fund in your household budget? Would you be prepared to handle unseen emergency with a hefty expense?

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