AMES, Iowa -- Anyone may experience unexpected or emergency expenses from time to time -- such as car repairs, replacing a household appliance or medical bills not covered by insurance. Households can expect about $2,000 worth of these expenses in any given year, but many are not prepared to handle the expense, says Phyllis Zalenski, a human sciences specialist with Iowa State University Extension and Outreach.
When people do not have the funds to pay for an unexpected expense, some may use a credit card to pay it. Some might not pay other bills they have and instead use that money to pay the unexpected expense. Others might try to get a loan.
"These strategies may work in the short term, but can add long-term costs such as fees and interest, which increases your debt. You have to commit future income to repay the money you borrowed," said Zalenski, who specializes in family finance.
An alternative is to have money set aside specifically for emergencies, Zalenski said. "With emergency savings, you can pay for unexpected expenses when they happen without the additional costs of using credit or getting a loan."
Approximately half of Iowa households have emergency savings. Zalenski noted.
An emergency savings fund consists of money set aside, usually in a savings account, that can be easily accessed when needed, Zalenski explained. Start saving for this fund with small, regular contributions that will build up over time.
"One way to do this is to ask your financial institution to transfer funds from your checking account to a savings account. If you receive a gift of money or tax refund, use some of it to start or add to your emergency savings," Zalenski said.
How much should you save? Consider the cost of common emergencies. By saving $25 a week, you will have $1,000 in 10 months, which could cover many unexpected expenses.
Iowans can learn more about planning for emergencies and unexpected expenses in “Your Money, Your Future,” a workshop series from ISU Extension and Outreach. The introductory two-session workshop also includes information on how to access non-money income, decrease expenses and develop a plan to increase savings. Sessions include discussion, a variety of activities, information about resources and a workbook. All information is unbiased, research-based and taught by human sciences specialists in family finance.
"When you have sound information and strong skills, you can make your money work for you and for your future. You can manage your money effectively, make better financial decisions and live according to your priorities. With sound financial management, you can be more financially secure," Zalenski said.
For more information about “Your Money, Your Future” workshops in your community, contact your ISU Extension and Outreach county office or visit this website, https://www.extension.iastate.edu/humansciences/your-money-your-future.
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