Many of us may think we have a bulletproof budget strategy to deal with unexpected costs, but the truth is; life gets in the way. We can’t always be ready for what’s thrown at us. While many people have the mentality that “nothing bad will ever happen me”, it’s not always smart to think like this from a financial point of view.
From children’s medical bills, to higher insurance premiums, to repairing a smashed iPhone screen, there are things in life that come with an unwelcomed bill, and we need to know how to cope with these unexpected costs.
A new study by finder.com.au surveyed 2,016 Australians and asked how they would access $2,000 if they didn’t have the cash available. The survey found that 52% of Aussies turn to their credit card, while 28% would count on the “bank of mum and dad.”
It turns out that women are more comfortable turning to the “bank of mum and dad” with 32% prepared to ask for help from friends and family, compared to just 22% of men.
But it’s not all doom and gloom. Of course, if you’re proactive about your financial planning and debt management, you can make things a little more bearable when it does come time to deal with a money emergency.
Here are five practical ways you can manage a money emergency and deal with a financial shock:
● Review your spending behaviour.
When it comes to budgeting, you need to identify areas where you can reduce expenses to boost your savings balance. Start a budget spreadsheet (or use a budgeting app if you’re so inclined) and identify all your expenses – petrol, food, transport, utilities and other household bills – and come up with a strategy to reduce them. For instance, you may want to give your internet provider a call to negotiate for a better deal or you may decide to only dine out once a week, instead of twice. Changing your spending habits is a good way to free up funds to lodge in your emergency fund.
● Squeeze every cent you can.
Take a close look at all your financial products – loans, credit cards, savings and transaction accounts – and decide if there’s room for improvement. Are you paying too much in account-keeping fees? Could you access a better rate? Are you taking advantage of all the benefits and features available to you, such as a mortgage offset account or a 0% interest-free period on your credit card? Some groundwork can go a long way to ensure that you’re in the best financial position that you can be. If you think there’s area for improvement, speak to your bank or provider and ask for better.
● Take control of your debt.
A good way to improve your financial position is to manage your debt more efficiently. Whether you take out a balance transfer card to pay down your balance during the interest-free period or you make extra repayments on your home loan to minimise your interest costs, there are many ways that you can better manage and lower your debt.
● Invest in yourself (upskill).
You can increase your earning capacity by investing in your education to diversify your knowledge and skills in a given area. For example, you may want to apply for a tertiary course in business management or architecture. This will enable you to boost your earning potential so that you have surplus income to help cope with a money emergency.
● Put your hand up, and ask for help.
Approach a financial broker, an accountant or even family and friends if you’re concerned about your ability to deal with an unexpected cost. There’s also help available online through the Australian Securities and Investments Commission (ASIC) website where you have access to free online counselling.
We must do all we can to manage and improve our financial position before life hands us a financial curveball. The best way to do this is to conduct a financial audit, take steps to increase your savings and debt position, and remain calm when things don’t go to plan.
Bessie Hassan is the Money Expert at finder.com.au, Australia’s most visited financial comparison website.