We all end up in situations where we have unexpected expenses. This subject is especially poignant for me this year because my husband asked for a divorce back in May, and that resulted in some major costs that I wasn’t expecting.
I was fortunate in many ways, considering the situation. My ex wasn’t interested in fighting over resources. Instead, he just wanted things to move as smoothly as possible. All he wanted was some help setting up his own living situation and asked nothing beyond that. I ended up moving across the country, which was the biggest expense and one I was able to handle.
As I thought about how I made it through the divorce with my finances intact, I realized that I used three different strategies to handle my unexpected expenses. Let me share them with you today and hopefully it’ll help you:
1. Emergency Savings
First of all, it’s worth noting that I keep an emergency fund. My rainy day fund is a little unconventional in that the bulk of it remains in a taxable investment account, invested in an index fund that follows the S&P 500. It’s not too bad thought because I keep three weeks’ worth of expenses in a high-yield savings account. Plus, the high limits on my credit cards mean that anything short term expenses for the month can be covered until the due date which I then pay off. By setting things up this way, my funds can be invested and it’s worked out beautifully for me because the expected long term trend of the stock market is always up.
2. Line of Credit
Even though I could have used the emergency savings to cover everything, I decided I didn’t want to deplete things that far. I opened a line of credit just in case. If you can get a relatively low rate, it might be worth it to use a line of credit to help manage unexpected expenses. It can be a way to smooth cash flow, as well as prevent you from completely drawing down your emergency fund. I was able to keep the low rate and pay off what I borrowed relatively quickly, so the interest didn’t make a dent in my finances (since it was largely neutralized by my investment returns on the emergency fund).
3. Help from Others
I am fortunate that I have a good support system. Even though I paid most of the unexpected expenses myself, using my amassed assets or my access to cheap credit, I did get some help from others. When I first moved to town, my parents generously let my son and me stay at their house until I found a place of my own. When I did secure a rental, my parents took us shopping and bought a number of household items for us. This included everyday stuff like cleaning supplies, paper supplies, and some kitchen staples. It was a kind gesture that reduced the amount of money I had to spend outfitting my new home.
When you run into unexpected expenses or a financial emergency, stop and think about the resources you have available to you. There are a number of ways to look for help, whether it’s a local religious congregation, community group, or simply from friends and family. You should also plan ahead now, building your emergency assets and working on building good credit so that you have more low-cost options when you need access to capital.
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My mother-in-law died in Las Vegas without a pot to p*ss in or a window to throw it out of on January 27, 2020, leaving us on the hook for her final expenses to the tune of ~$5,000. Even though I had the funds available to pay the tab upfront, my gut said to put it on a credit card. We had plenty of work lined up at both our “day jobs” and side hustles for the upcoming year, so we figured we’d have the debt paid off in short order. Well… guess what happened a few weeks later? (Hint: starts with a “C” and ends with an “OVID-19”) Bam, 75% of our anticipated income, gone. Thank God I’d had the ability – and the instinct – to cover that expense with a credit card because our emergency fund got depleted over the course of the next couple of years just keeping the heat on and food in the pantry.
Almost 4 years to the day later, that bill was paid off early, and our emergency fund is almost restored. This time around, I’m building it up with even more of a cushion. I try to avoid debt if at all possible, but it’s situations like my MIL’s death that I hang onto my credit cards.
Where to I look for emergency financial assistance immediately when I don’t fit in usual boxes? I am in benefits and have health coverage (most thankful) I have an immediate need for a 2k loan or grant I do not have collateral or high enough income for more credit? Stuck at pawn shops trying to keep my heirlooms. Most links send me to a fraudulent site only to be victimized. I know this as fact. It happened. My info all over dark web. List …..Thank you for your time.
Awesome stuff Miranda excellent tips. I have always thought it is important to keep an extra amount in savings just in case for emergencies. I had a friend whose dad had a stroke and had to go into full time care and he struggled to find the money to support his father. Ultimately he Maxed out his Credit card which was a costly mistake.
Incredible article Miranda! I figure many individuals don’t believe that an occasion will come up that may exhaust their assets. I extremely like setting up a just-in-case account. I unquestionably think three weeks is sufficient time to make sense of an approach to begin profiting if essential.
What’s the difference between a line of credit and a credit card?
The only difference is really how you can use a credit card to pay versus a line of credit where it usually comes with checks or some lines let you electronically transfer money elsewhere. Most lines have lower interests costs than the loan you get with credit cards as well.
Ding, ding, ding, we have a winner!
#1 Emergency Savings. Always try and keep something in reserve, the best advice.
Yup. You just never know when you need cash in a hurry.
How much percent of your money should you keep in emergency savings? LN.
There’s really no set rule. This article may help you figure it out though!
https://moneyning.com/money-management/how-much-do-you-really-need-in-your-emergency-fund/
Great article Miranda! I think a lot of people don’t even think that an event will come up that might deplete their funds. I really like the idea of setting up an emergency fund. I definitely think three weeks is enough time to figure out a way to start making more money if necessary.
Most accidents are unlikely events but that doesn’t mean they never occur. You certainly don’t want to let one unfortunate event ruin your finances.