Responding to Financial Emergencies

Responding to Financial Emergencies in Times of Uncertainty

The COVID-19 pandemic is a sobering reminder that financial challenges come in all shapes and sizes. Some obstacles—such as job loss or income reduction—are immediate and obvious. Others—such as fear or uncertainty about the future—are more subtle, but they can still disrupt our regular spending and saving patterns in a negative way.

Although there isn’t a one-size-fits-all solution to financial emergencies, you can take steps to minimize damage while you work on a recovery plan. When confronted with a financial emergency, consider doing the following:

Step #1: Stop the Bleeding

Immediately limit your spending to essentials only until you figure out how much money you need to recover from your emergency. In this case, an essential expense is any purchase that keeps you productive while tackling obstacles. Protect your ability to eat, sleep, and continue to earn income. Pause, skip, or cancel everything else.

Initially, it may seem punishingly frugal, but every dollar you save gets you one step closer to recovery. Continuing to spend money as you normally do can sabotage your efforts to get back on track.

Entertainment expenses (think streaming services, gaming subscriptions, and app memberships) are a good place to start cutting costs since they are easy to pause or cancel online. 

Step #2: Take a Close Look at What’s Going On

Take the time to calculate your emergency's total financial impact on your budget. This includes the cost of the emergency itself plus any costs resulting from its consequences. A hefty medical bill is an example of an emergency expense; the additional cost of carrying debt resulting from that bill is an example of a consequence. The more realistic and accurate your calculation, the more effective your recovery plan will be.

Consulting your budget is another crucial part of this step. If you don’t have a budget in place, create one. Use any method you prefer—app, spreadsheet, pen, and paper—as long as you can accurately capture how much you earn and spend each month. This will help inform your recovery plan: you’ll know how much money you can contribute each month and roughly how long it will take to recover.

Step #3: Put a Band-aid on the Situation

When dealing with a financial emergency, look for temporary solutions to help keep things manageable while seeking the appropriate help. Moving your payment due dates can ease some of the stress in some cases—especially if several of your payment dates are close together. Call your financial institution, credit card, and utility company to explain the situation and see if you can reschedule a payment date without penalty. Doing so helps prevent your emergency from setting off a domino chain of late fees and missed payments.  

Step #4: Seek the Appropriate Help

It’s normal to feel helpless and alone in emergencies, so it’s especially important to seek knowledgeable guidance in times of financial stress. Aid can come in many forms, including financial relief, education, counseling, and support. Your financial institution, government programs, and other organizations offer research resources. Your credit union may have access to additional resources you are unaware of.

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Reducing your spending, consulting your budget, extending your payment due dates, and seeking support will help ease the road to recovery when dealing with a financial emergency. Whether you need to replace income or cover an unexpected expense, the four steps listed above will help you evaluate the problem and deal with it in a smart and efficient way.