Weathering The Storm: How A Better Understanding Of Emergency Preparedness Can Improve Your Financial Situation

Recent surveys have found that roughly four out of ten Americans are unprepared for financial emergencies due to a lack of savings or a high debt-to-savings ratio. If you feel insecure about your current financial status, you may wonder how you will deal with a financial emergency. While you are making plans to deal with emergencies, understanding the difference between a crisis, emergency, and disaster can give you a better idea of where you stand and what your next steps should be. 

Crisis 

A crisis is considered the period of time before an emergency or a disaster, when you and your household are experiencing slight difficulty or danger. A financial crisis can include loosing your job, preparing for a move, or falling ill. Positive life events, such as having a child, can also lead to financial crisis. Depending on how much warning you have before your financial situation changes, and your current debt-to-savings ratio, a crisis can be short or long term. 

Ideally, if you handle a crisis appropriately, it will not escalate to an emergency or a disaster. Some appropriate responses to a financial crisis include: 

• finding sources of extra income such as selling items online or through consignment. 
• assessing your budget and cutting back on unneeded expenses. 
• talking with lenders about changing your current payment plans. 

Even if you handle your financial crisis well, it may lead to an emergency or a disaster, depending on its duration and your access to resources. 

Emergency 

An emergency is considered a small-scale issue that needs immediate attention. Your car breaking down when you need it for work or a sudden toothache when you cannot afford a visit to the dentist are both emergencies. Ideally, you would have enough money in savings to handle financial emergencies, but not all Americans do, and if multiple emergencies arise at the same time, you might need instant cash to deal with them. 

When you have a financial emergency, it is important to deal with it before it affects other areas of your life. For example, letting a toothache go untreated can lead to further, more expensive health issues over time. To deal with an emergency you might: 

• get a payday loan. 
• borrow from friends and family. 
• pawn items for cash. 

When getting a payday loan or pawning items, it is important to make sure you will be able to adjust your spending in a way that will allow you to pay off the loan or ticket when it is due. 

Disaster 

A disaster is either a large scale emergency or many smaller emergencies that combine to wreak havoc on your finances. A financial disaster might include being unable to meet your basic needs because of large amounts of debt or insufficient income. When you experience financial disaster, you may be tempted to try to deal with each emergency on its own by continuously taking out small loans or cutting back on necessities. However, you may need additional help. You might: 

• speak with a financial counselor. 
• determine whether you qualify for government assistance. 
• consider legal options such as bankruptcy. 
• make major life changes, such as moving to a cheaper area or changing careers if possible. 

Getting outside assistance during a financial disaster can help get you to a point where you can manage your finances successfully on your own. 

Looking at your financial situation critically and calmly will help you decide whether you are experiencing a crisis, emergency, or disaster. Once you have determined which type of financial stress you are experiencing, you will be better prepared to make decisions that will be best for you and your household in the moment and over a long period. 

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