How to Determine What Qualifies as a Real Financial Emergency

December 02, 2015

Building a solid emergency fund is essential for safeguarding against surprise life expenses. We like to suggest 6-12 months of income to be set aside in your emergency fund. The 2014 Assets and Opportunity Scorecard revealed that 44 percent of American’s are “liquid asset poor,” meaning they lack enough savings to cover three months worth of living expenses and do not have savings to allocate toward future expenditures like buying a home or paying for a child’s college education.

Even those who have an emergency fund can fall victim to depleting their funds for the wrong reason and think that every bill that comes to you is an urgent expense that your day-to-day checking account cannot handle.

So what qualifies an expense to be a real financial emergency? The expense must be unavoidable and urgent. Unavoidable expenses are those that you could not possibly foresee and often cannot dodge such as getting laid off, a broken leg that needs surgery, car accident that totals the vehicle, etc. Urgent financial matters are ones that must be paid for immediately. Expenses that are NOT urgent include a down payment on a new car, footing the bill at a birthday dinner and wedding costs.

Since everyone’s financial obligations and daily obstacles can vary substantially, being able to differentiate between what is considered an emergency is understandably hard to measure. However, by knowing which expenses can be addressed simply by shifting day-to-day spending, you’ll be better adept at knowing when to break the lock of your emergency fund.

Schedule an appointment with one of our advisors to make sure you are prepared for an emergency. Call us at 763-231-9510 or email Katherine@prosperwell.com.

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