Navigating an Unexpected Financial Emergency

By Emily Garcia

At some point in life, everyone will face what constitutes a financial emergency, such as an unexpected tax bill, loss of income or fender bender.

A survey of 8,000 U.S. workers, done by Willis Towers Watson in February 2020 found that 38% of employees were living paycheck to paycheck, and 39% could not come up with $3,000 in the event of an emergency.

Ed Ariail, a financial advisor at Carson Advisory Group, said the simple lesson is to be prepared and plan for the unplanned.

“Go ahead and plan for an emergency, because you don’t know what it will be, but something is likely to happen,” Ariail said.

There are a few different ways to navigate a financial emergency without breaking the bank.

Building up an emergency fund:

Kenneth White, an assistant professor of financial planning at the University of Georgia, said it is generally recommended to build up an emergency fund of three to six months of one’s income.

“If you’re just starting out, I would say a few of the first things you want to do are create a budget for yourself…and create an emergency fund,” White said.

He added that those working for commission or have other forms of fluctuating income may want to keep a slightly larger emergency fund.

Although saving can be difficult, Ariail said it’s important to start small and cut expenses before committing to a strenuous saving plan. Ariail said tax refunds are another source of money that can be added to an emergency fund.

“It’s a form of forced savings,” Ariail said. “If you saved your tax [refunds] for a couple of years, you’d have a nice reserve built up.”

White said an emergency fund should be kept somewhere relatively liquid, or easy to turn into cash.

For example, he said, investing an emergency fund in stocks would not be the best place keep that money because it is not easy to turn into cash and there is the potential for loss depending on the stock market.

Maintaining good credit:

For those without an emergency fund, having good credit is the next best thing, White said.

Ariail said he encourages everyone that he advises to monitor and build their credit in case of an emergency.

He suggested taking out a small loan and putting it in a savings account to pay back over time.

“If you did need to walk into a bank and borrow a couple thousand dollars, you’ve got the credit rating that’ll allow you to do that,” Ariail said.

Avoiding predatory lenders:

Ariail said there are some money lenders who will offer small loans to people with bad credit with the caveat of onerous interest rates.

Kevin VanCise, a senior at UGA and president of its Student Financial Planning Association, said he would steer clear of taking any loans with interest rates of 10 percent or above.

“You really do want to be aware of what you’re getting yourself into,” VanCise said. “In the rush of trying to solve your emergency, you might make the mistake of creating another emergency.”

Seeking out financial advice: 

VanCise said seeking out financial advice can go a long way to change a person’s financial situation. He recommended seeking out community education clinics like the ASPIRE Clinic in Athens, Georgia.

The ASPIRE clinic offers financial counseling services free of charge to the Athens area and its surrounding communities.

“Wherever you may be, there are people willing to do for-free consultations to help you through your scenario,” VanCise said.

Emily Garcia is studying journalism at the University of Georgia. She is a 2020 Cox-SABEW Fellow, a training program in partnership with UGA’s Cox Institute for Journalism Innovation, Management & Leadership.

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