How Many Financial Emergencies Can You Really Afford?
You’ve probably heard before that you should have an emergency fund. Most experts suggest that you have at least three to six months’ worth of expenses saved up, but more is better. Building a healthy emergency fund can help you if something unexpected comes up. If you don’t have one right now you should make that a priority (here are three easy ways). Nearly 50% of Americans can’t afford an emergency, and even those who do have money saved may not be able to afford a massive emergency, or multiple emergencies in a short time period.
So, just how much will an emergency cost you? It depends on the type of emergency, and possibly, how many emergencies you face at once. This is because if you can’t afford to pay for something and you use your credit cards, you may end up owing even more. Here are the costs of four potential financial emergencies.
1. Job loss
If you lose your job, you will need to find a way to cover all of your expenses. You may qualify for unemployment benefits, but you may not; you also have to prepare yourself for the possibility that your unemployment benefits will run out before you find another job. How much you will lose if you face this emergency will depend (the median usual weekly earnings of full-time wage and salary workers was $913 for men and $744 for women in the second quarter of 2016).
However, it also may depend on your expenses. If you already cut costs recently to save money, and all of your expenses are necessary, you may end up having a more difficult time than someone who can still cut costs. If you’ve saved up enough money to survive for three months, and you remain jobless for six months, then you will lose your emergency fund but will hopefully avoid drowning in debt.
2. Major medical emergency
Hopefully, you have health insurance. Even if you do have health insurance, a major medical emergency or procedure in your family may cost you far more than you have in your emergency fund as deductibles and premiums continue to rise. A trip to the emergency fund could cost you a few hundred dollars even with insurance, or it could cost a lot more than that. If possible, go to urgent care instead of the emergency room; you will probably save a lot of money (the typical cost is $50 to $150, as opposed to an emergency room cost of over $1,000).
In addition to a trip to urgent care or the emergency room, if you face a major medical emergency that requires a long hospital stay, or a surgery, you may be shocked at the cost. In 2013 the aggregated cost of hospital stays was $375.9 billion, and the average cost per stay was $9,700.
If you have no kids, little property, and you still get along with your spouse, you may be able to experience an amicable separation and manage not to lose too much money in your divorce. Divorce can cause a large financial strain in addition to the emotional impact that it leaves. According to Nolo, nationally people paid an average of $250 per hour to divorce attorneys; consumers reported paying about $15,500 for their divorces.
People who had more issues to figure out, including child custody, child support, division of property, division of debt, and claims of fiduciary duty, often paid more. If possible, try to work out as much with your spouse as you can, and only use lawyers when you absolutely have to.
4. Major repair or purchase
Ideally, you will be able to plan for a home purchase or the purchase of a new car. However, sometimes emergencies come up that are completely unexpected and unavoidable. If your car breaks down and it will cost you more to fix it than the car is worth (or if the car can’t be fixed), you may need to purchase a new car immediately. You can spend as little as a few hundred dollars on a car, or you can spend thousands. Car repairs will vary depending on what the problem is, but you may be looking at a hefty price tag. You can use an auto repair estimate calculator to get a general idea.
Home repairs can also harm your budget. Ideally, try to put money aside for car and home repairs each month. If you face an emergency and something breaks unexpectedly, you may end up spending a few dollars to replace a broken door knob, a few hundred to fix a window, or a few thousand to replace a major appliance or problem with your roof.
If you face several emergencies at once, you may find yourself lacking the proper funds to cover everything. Even the best saver can have too many emergencies at once to be able to afford the costs.