We all end up in situations where we have unexpected expenses. This subject is especially poignant for me this year because my husband asked for a divorce back in May, and that resulted in some major costs that I wasn’t expecting.
I was fortunate in many ways, considering the situation. My ex wasn’t interested in fighting over resources. Instead, he just wanted things to move as smoothly as possible. All he wanted was some help setting up his own living situation and asked nothing beyond that. I ended up moving across the country, which was the biggest expense and one I was able to handle.
As I thought about how I made it through the divorce with my finances intact, I realized that I used three different strategies to handle my unexpected expenses. Let me share them with you today and hopefully it’ll help you:
1. Emergency Savings
First of all, it’s worth noting that I keep an emergency fund. My rainy day fund is a little unconventional in that the bulk of it remains in a taxable investment account, invested in an index fund that follows the S&P 500. It’s not too bad thought because I keep three weeks’ worth of expenses in a high-yield savings account. Plus, the high limits on my credit cards mean that anything short term expenses for the month can be covered until the due date which I then pay off. By setting things up this way, my funds can be invested and it’s worked out beautifully for me because the expected long term trend of the stock market is always up.
2. Line of Credit
2. Line of CreditEven though I could have used the emergency savings to cover everything, I decided I didn’t want to deplete things that far. I opened a line of credit just in case. If you can get a relatively low rate, it might be worth it to use a line of credit to help manage unexpected expenses. It can be a way to smooth cash flow, as well as prevent you from completely drawing down your emergency fund. I was able to keep the low rate and pay off what I borrowed relatively quickly, so the interest didn’t make a dent in my finances (since it was largely neutralized by my investment returns on the emergency fund).
3. Help from Others
I am fortunate that I have a good support system. Even though I paid most of the unexpected expenses myself, using my amassed assets or my access to cheap credit, I did get some help from others. When I first moved to town, my parents generously let my son and me stay at their house until I found a place of my own. When I did secure a rental, my parents took us shopping and bought a number of household items for us. This included everyday stuff like cleaning supplies, paper supplies, and some kitchen staples. It was a kind gesture that reduced the amount of money I had to spend outfitting my new home.
When you run into unexpected expenses or a financial emergency, stop and think about the resources you have available to you. There are a number of ways to look for help, whether it’s a local religious congregation, community group, or simply from friends and family. You should also plan ahead now, building your emergency assets and working on building good credit so that you have more low-cost options when you need access to capital.