How to Contrast the Difference Between a Financial Emergency and a Non-Emergency?
Understanding the difference between a financial emergency and a non-emergency can help you break down your budget more effectively and make a plan for your finances. For starters, financial emergencies are expenses that you did not plan for and need to be solved ASAP. They aren’t the car loans or mortgage payments that you expect. Non-emergencies are not bills, but rather are considered to be “wants” that you desire to fit in your budget at some point, even if you can’t afford to pay for the item right now.
Financial emergencies should always be prioritized over non-emergencies in your budget. Generally, you should have an emergency fund to cover unplanned expenses that can derail your budget and cause financial instability. But you may be living paycheck-to-paycheck and do not have the means to save as consistently as you would like. A recent Forbes survey revealed that nearly 70% of respondents lived similarly. So you are not alone if you find yourself in this situation.
Understanding Financial Emergencies
Before you can start saving for your emergency fund, understanding how important it is to have a safety net for financial emergencies is the first step towards building financial security.
Without a safety net like an emergency fund, you have to rely on credit cards, loans, or even your tax return to get financial relief. Sudden job loss or medical bills without insurance coverage can strike at any time.
Having at least 3-6 months’ worth of expenses in a high-yield savings account can be a lifeline. Some of the most common financial emergencies include the following:
Home Repairs
When you own a home, there is no landlord to come and take care of repairs when a pipe bursts or your A/C finally gives out. The average cost to replace a furnace ranges from $3,500 to $7,500, which is often outside the price range of many homeowners. But it’s a financial emergency when you can’t cool your home or heat your house during extreme weather.
Medical Bills and Health-Related Emergencies
Medical debt is an unfortunate reality for many Americans, especially those without an emergency fund. While you may be healthy, no one is immune to accidents and other medical mishaps. Depending on the cost of your procedure, you may be able to pay for it out of pocket. But for major surgeries, like a rotator cuff surgery, having an emergency fund can help you pay for any out-of-pocket expenses that come from this financial emergency.
Veterinarian Bills
No one wants to see their furry or scaly friend suffer. Whether your pet lizard or dog needs emergency surgery or medication, this is a financial emergency you may not have planned for, but you need to handle it ASAP to get your pet healthy.
Funerals
Sometimes, death can be predicted, but for the most part, it is unpredictable and sudden. Planning for a funeral is a financial emergency that no one wants to be prepared for, but having an emergency fund to deal with a variety of personal expenses and tragedies is an unfortunate reality of budgeting. Funerals can easily cost thousands, so they can be tough to pay for without a little bit of financial planning.
Car Repairs
One blown engine or spring repair can easily throw off your budget. If you can’t use your car to get to work, that’s a financial emergency! Regular maintenance shouldn’t be a part of your financial emergency budget, but you should be taking your vehicle in regularly to make sure that it’s in good working condition.
What are Financial Non-Emergencies?
Now that you have a better understanding of financial emergencies, the next step is to learn more about non-emergencies. As mentioned above, non-emergencies are “wants” that may or may not fit in your budget and are not essential for survival. But that doesn’t mean they aren’t important! These types of expenses just aren’t as important as
The most common examples include:
- Weddings
- Down Payment for a New Car
- Vacations and Honeymoons
- Planning for Retirement or Higher Education
Saving for your retirement or a wedding is an important milestone in your life, but that isn’t on the same level as a financial emergency like medical bills or car repairs. Reaching your savings goals tends to take a lot of time and effort, along with careful planning for how much you can afford to take out of your monthly budget. Comparatively, paying for new shocks or an emergency surgery needs to be solved ASAP.
How Much Should You Have in Your Emergency Fund to Prepare for Financial Emergencies?
Whether you are in your 20s or another later decade of your life, having a fully funded emergency fund should be one of your primary savings goals. Many financial experts recommend having at least 3-6 months’ worth of life expenses (think monthly expenses like rent, groceries, estimated utilities, etc.) in a savings account separate from your savings for non-emergency expenses.
Key Differences Between Financial Emergencies and Nonemergencies
Think of financial emergencies and non-emergencies like different chores for your home. Laundry and groceries are weekly tasks (such as automatically putting money into your savings for retirement). Repairing a broken sink or a crack in the foundation are more rare chores that need to be done before anything else in order to keep your home running smoothly.
Check out some of the key differences between a financial emergency and a non-emergency:
- Impact on Financial Stability: If you need to miss a direct deposit into your savings for retirement, it isn’t the end of the world. But if you can’t afford to pay for an expensive surgery out of the blue and you don’t have health insurance, your health could be at risk. Financial emergencies tend to significantly impact your stability and can throw off your entire budget if you aren’t prepared.
- Response Time: Some financial emergencies must be solved ASAP, unlike non-emergencies. For example, let’s say that your car has a blown engine. You’ll need to solve that as soon as possible. Otherwise, you won’t have a working car to get where you need to go.
- Financial Vulnerability: Without a fully stocked emergency fund, your finances become vulnerable. What that means is that if you encounter a financial emergency, you may rely on a credit card or a loan to solve it.
Why Is Self-Discipline The Key To Becoming a Good Saver?
The easiest way to become a good saver is to become as disciplined as possible. If you have to fake it to make it, try automating your savings until you can get to the point where you are contributing more of your extra cash to your savings and emergency fund without an automation system.
Other tips for becoming a good saver include:
- Using the best applications to track expenses and income! Check out free online tools like our financial toolkit or apps like RocketMoney to stay on top of your money each month.
- Dave Ramsey has an emergency fund calculator available online. Use it to calculate how much your emergency savings should cover based on your age.
Understanding the difference between a financial emergency and a non-emergency is just the first step towards your financial goals. By creating an emergency fund and learning self-discipline, you can get closer to financial stability and learn how to handle everything life throws your way.
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