7 Financial Emergencies Everyone Must Be Prepared For

A while back, 5 years ago, I was driving from Kisumu to Nairobi and my car broke down in the middle of the road. I panicked. 

This was not so much because of the embarrassment but the thought of how much this was going to cost me to tow the car and repair it. Mind you I had my family in the car. So it also meant I had to find temporary accommodation. 

So many of us do not like to spend money on such things (emergencies). It becomes even worse when you do not have enough money at your disposal to cater for such a surprise. 

Henceforth, I ensured to have an emergency fund on standby. Emergencies occur when you least expect them. Some are unusual and some can be anticipated and you can prepare for them in case they happen.

Let’s take a look at a few financial emergencies you should ensure you are prepared for.

1. Dried up cash flow

Losing your main source of income is considered a financial emergency. That is without a doubt. This, in fact, acts as the main reason why you should have an emergency fund. Even worse, sometimes, this could come out of nowhere. It just pops out of the blues.

You may be a freelancer and you have just lost a client or perhaps you’ve recently received a notice that may imply immediate consequences that may include:

• Loss of a job is the most obvious reason. Other than causing stress, it means you cannot pay your expenses anymore, which may result in having utilities cut-off. Even if you can receive a severance package for unemployment, that could still only be a fraction of your previous salary. 
• You could have been receiving benefits like health insurance, housing allowance or retirement contributions from your previous employer. And if you have lost your job, then you may have to start funding your plan for the time being or pay out-of-pocket for medical care. 

It may take a while for you to find another job that compares in pay to your former job. If you have nothing set aside, you will continue to struggle to take care of your expenses. 

Your emotional and physical health may also suffer as you may start to have feelings of failure and hopelessness. Consequently, this causes some financial stress, puts a strain on your relationship with others, and in some cases, could lead you to engage in unhealthy habits like substance abuse. 

2. Medical or dental emergencies 

Even if you are lucky enough to keep your main source of income, you know you will, at one point, have to deal with a medical or dental emergency. 

For example, you may get hospitalized because of a sudden illness or accident. That visit you make to the hospital can cost as high as a mortgage payment or car deal. 

3. Home/car maintenance and repairs. 

Let’s be honest. As a homebuyer, you rarely think about how much it would cost to own, operate and maintain your own house.  Most buyers are interested in looking at how much it would cost to buy or build. 

If a buyer is dangling on the edge of affordability, purchasing a bigger house that comes with higher maintenance and upkeep could push them over the edge financially.

If you would not want to encounter such a scenario, you need to create an emergency fund to not only keep your home in good condition but also cover unforeseen expenses.

A possible event that could push you to do house repairs could be a natural disaster damaging your home or plumbing issues. 

If you own a car, the same idea needs to be applied. In addition to keeping your car in tip top shape, you have to be able to cover the cost for any potential swift expenses. Setting aside an amount like Ksh5,000 every month for car repairs/maintenance is advisable.

4. Unanticipated travel

Have you considered a situation where your loved one has become suddenly ill or has passed on? You probably won’t have sufficient time to compare travel or accommodation prices. Mostly if you happen to be abroad or generally far away from home. You don’t have the luxury of being patient until a better deal comes by. 

Instead, you’ll probably get a plane ticket at an exorbitant price because you don't have any other choice. Even if you spotted an amazing deal, it is still an expense that you have not planned for. 

5. Funeral costs

While this is certainly a grim topic, we know it’s inevitable. What’s more, funerals can be really expensive to conduct depending on your practices. I remember when a friend lost his father and was astonished at how expensive the funeral was and how his family scrambled to pay for it. 

And yes, if the loved one had life insurance, you would get reimbursed. But, it could take a while before that happens. 

6. Unsuccessful Investment Decisions

Not everyone becomes successful when they invest. Investment is inherently risky which means the possibility of losing money is always there as is the possibility of raking in a huge profit. 

Wrong investment decisions aren’t just limited to beginners or investors with little experience. They also happen to the best of experts.

Individuals often invest intending to increase capital but this doesn’t always go as expected and may result in one losing their money. For instance, when investing in real estate, it is not always advisable to depend on future growth as a sudden change like a hindrance in the project can stop the construction and impact your investment negatively.

When intending to invest, it's important to do thorough research on the kind of investment you would like to dive into so that you’re fully aware of the kind of risk you are getting into.

With the knowledge that an investment could go south, putting all your eggs in one basket, so to speak, would not be the best idea.

7. Family Responsibilities

This usually is a predictable expense which a person can prepare for sufficiently. Expenses like funding your children’s tuition, starting them off on their careers, funding your wedding, saving up for your retirement, and saving up to support your ageing parents are a few of the responsibilities that one has to shoulder.

At such times, it’s better to have enough cash to help you fulfil those duties adequately. To achieve that, you can invest or save in instruments that are designed to provide some financial protection at certain stages of your life. These may include insurance policies, retirement savings plans, savings products, disability insurance e.t.c.

While family responsibilities are very well known and anticipatable, if you have not prepared beforehand then getting that back-to-school amount a week before learning resumes is an emergency. 

WRAPPING UP

Having an emergency fund set up ensures that you are prepared for any scenario that life decides to throw your way. Best of all, it does not take much to get started. 

If you put aside something in the region of 10% of your monthly income over time, you would have a significant sum within a year and that could make the difference in your budget.

Furthermore, you’d feel much better and safer, impacting positively on your mental health.