When we plan for the future, we don’t want to think about the bad stuff. We want to think about the trips we could take or the first step towards homeownership.
The Federal Reserve asked respondents of their annual survey, how they would pay for a $400 emergency. The answer was quite surprising: 47% of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all.
Really? They couldn’t come up with $400? The solution for most would most likely be: grab the plastic and swipe.
I know if the money is not in my checking account at the moment, that is what I would do. Use my credit card. I do know the importance of paying off the card each month so that it does not ruin your credit score and you don’t owe more money on top of the money you borrowed. The ease of the credit card is something that most people grapple with. It is so convenient but it can be a slippery slope.
It is so easy to fall into debt when you swipe the credit card because all of a sudden, you have 30 purchases and you now have to pay a larger bill than expected.
The real question should be: do you have an emergency fund? If you swipe, would you be able to pay off the $400 at the end of the billing cycle?
When you swipe the credit card, are you balancing out which cards you are using so that you do not carry a large balance on just one card and end up paying more in interest if you cannot pay it off? Have you looked into different credit cards with different benefits that work with you? For example, having a cash back card for everyday purchases and having a credit card for frequent flyer miles if you like to travel for larger purchases.
Would you borrow or sell for the $400? I would probably borrow and then look for a side hustle. Knowing what friends and family are working on for projects and seeing if you could do some work for them to make a little extra side income.
Knowing that on average people cannot pay $400 for an emergency, make sure to keep funding an emergency fund. $10/week To fund a basic emergency savings account will get you started. Not sure where your going to get the funds? Put $10/week into the savings account. You will find $40/mo in that account, and at the end of the year, you will have $480 in your account! You now have that $400 emergency covered.
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