Finding spare money in an emergency can be hard – and even if you are saving up for something like a big-ticket appliance or home upgrade, it can still put a strain on your bank account. Emergencies happen when we least want them or expect them. However, like the Scouts, you can always be prepared. So how does one finance life’s expenses? Here are some tips and tricks to ensure you can cover emergency expenses or planned ones such as home upgrades, holidays, and more.
Have an emergency fund
The amount of money you need in an emergency fund will depend on your monthly costs, income, and size of your family. As a general rule, you should save enough to cover your costs for three to six months. You should aim should save a small amount every week or two to a high interest bank account. Don’t just let it accumulate forever – whenever you reach that mark, set some aside to pay off debts, invest, or begin a savings fund for home upgrades or holidays.
Use a credit card
Credit cards are a handy and convenient way to cover emergency expenses and home upgrades, provided you have a big enough limit. Credit cards offer incentives, rebates, and special interest rates to help you cut initial costs. Credit cards have high interest rates – nearly the highest recurring rates on this list – so select a card only if you can pay off the balance quickly to avoid large interest costs. With average home renovations costing almost $50,000, this can put a big strain on the plastic.
Get a personal loan
Getting loans in the USA isn’t difficult; banks, credit unions, and online lenders all offer personal loans for virtually any purpose; provided you meet the lending criteria and can comfortably pay back the loan. You will need to gather paperwork and pay stubs to apply for a personal loan, but personal loans can prove less costly than using one’s savings, a credit card, or even home equity (more on that later). It also gives you a definite budget to play with unless you want to incur cost overruns. Terms usually run between 24 and 60 months and are fixed monthly repayments, so they’re also easier to budget for.
HELOC Loans
If you are a homeowner, you may qualify for a HELOC or Home Equity Line of Credit loan. This allows you to borrow money against the equity you have in your home. You can use a HELOC loan for pretty much anything you want. One way to use them effectively is to finance major renovations to your home. In some cases, you may be able to leverage 90% of your home’s value with a lower interest rate than some comparable unsecured loans. However, if you have a 20-, 30-, or 40-year mortgage, you will be paying more in interest compared with a personal loan. Since a line of credit has no fixed payoff date, you could pay some back, borrow more, again and again. Make sure you talk to a financial adviser to make sure a HELOC loan is suitable for your expenditure.
Alternatives to credit and loans
One alternative to credit and loans is peer-to-peer lending, which connects individuals to those lending money in the private market. They may approve unconventional loans but may ask for higher fees or interest rates in return. You may be able to finance directly with contractors, stores, or other merchants – though they may lock you into high-interest rate credit cards or loan facilities that will leave you paying more out of pocket than you need to.
By making prudent decisions, you can avoid paying too much in an emergency or for home upgrades – and have some money left over for leisure and recreation!
