Help, I need Emergency Cash- What do I do?

I need Emergency Cash

I found myself in a tricky position in January. There was a mistiming with my tax bill and had to pay an unexpected large chunk of money by 31^st Jan 2020. The payment was expected to be one year later in Jan 2021. Crap.

I had thought that I was well prepared with an emergency fund of £5k to cover all emergency cash eventualities but no this bill was more than 5k. So, I had to look else where for money.

I wanted to share this post to help with options if you need a chunk of emergency money. When I say emergency, I mean real emergency money and a significant amount of cash. Typical small emergencies are things like a washing machine breaking or car repairs, these are covered by the emergency fund.

I am talking about a big amount of money that exceeds your emergency fund. Normally triggered by a life event happening. My tax bill was a consequence of a re-mortgage triggered by divorce. Maybe there has been a job loss or illness and a significant amount of money is needed to pay the household bills for a long period of time.

It is not money needed to pay for a holiday, or house maintenance or Christmas. Or anything that is non-essential.

Don’t Panic

Easier said than done, believe me I know. I panicked for around a day before coming up with a sensible plan. Panicking is going to make you react in ways that may cost you money and be worse in the long run. You need to come up with a sensible plan. Take 24 hours to breathe, maybe talk to someone about your plan.

Drain any savings you have.

Do you have any savings anywhere that you can access to pay the money? As I mentioned I drained my emergency funds. I also withdrew my auto-savings with Chip (where I was saving up for Christmas 2020).

I also took the decision to withdraw the money from my Stocks & Shares ISA. This was money that should be put away for at least five years, but it is money there in extreme emergencies. Fortunately for me I withdrew the money at the peak of the market (it has since dropped with the Coronavirus market fluctuations) and withdrew my original investment plus a healthy 10% return.

Do you have any savings set aside for the children? Withdraw and use it for your emergency if its accessible. This cant be done if its money held in Child Trust Funds.

Can you Access any Cheap Credit?

There are so many interest free credit card options out there, and this is a great option to get at free credit. If you get a 0% purchases card you can use this for your everyday spending, say food, petrol, children’s expenses and then use the money you would have spent on this to put towards your emergency.

Or can you access a low interest loan. Both methods do require you to have a decent credit rating, otherwise you will end up paying a high interest rate. Look at your local credit union for low interest loans. Zopa money is another option for lower interest loans.

I will add overdrafts into here but will mention that an overdraft is not a form of cheap debt. Especially from March 2020 when the banks change the overdraft rules and are now charging around 40% annual interest rate for them.

It maybe fine to dip into your overdraft for a couple of days but it is certainly not an option for money that you will need for a longer period of time.

Unfortunately, credit in the form of a loan or credit card wasn’t open to me. Being in the middle of a re-mortgage application I could not apply for any form of credit to tarnish my credit record.

Borrow Money from friends or family

I have put this option last as it’s a tricky one. It’s a difficult subject to approach with friends or family, as it feels like admitting a failure. But if they have the money spare and you guarantee to pay it back by a certain date or with a certain payment plan then it could be a great option.

It is the option I took for the last bit of the money that I needed. I admitted defeat and that I had I messed up, promised that I would have the money back by a certain date, and two friends helped me out.

NEVER EVER get a Pay day loan or high interest loan

These are the devil of the financial world and I speak to so many people whose debt has escalated to a point beyond their control with excessive repayments A loan with an interest rate of 200% or 400% typical rate I see are hugely expensive. If you borrow £1000 for a year at 400% APR means that you will end up paying pack £5000???!!!

Please please do not go near them.

Avoiding the Need for Credit

Of course, preparation and savings are the ultimate solution to having a cash emergency. This lesson has taught me that my £5000 emergency fund that I thought was enough, isn’t. And I need to rebuild a bigger emergency fund.

Build up an emergency fund at least 3 months of monthly expenses, 6 months is best. And do this before any money goes anywhere near savings for children and investments.

I hope this helps you to come up with a plan, thank you for reading and good luck.