Unexpected expenses can cause a lot of stress-- emotional and financial. On the latest episode of PennyWise, producer/editor Ambre Moton is joined by NerdWallet's Kimberly Palmer who has six key tips for recovering from financial surprises and how to prepare for the next one.
Read more on NerdWallet here!
About this program
Nat Cardona is host of PennyWise as well as Lee Enterprise's true-crime podcast Late Edition: Crime Beat Chronicles. Lee Enterprises produces many national, regional and sports podcasts. Learn more here.
Episode transcript
Note: The following transcript was created by Adobe Premiere and may contain misspellings and other inaccuracies as it was generated automatically:
Welcome to PennyWise and the Enterprises podcast. I'm Ambre Moton, the producer and editor of the show, filling in for Nat Cardona. Today we're talking about ways to recover from a financial shock and how to prepare for the next time. Being faced with unplanned expenses is a challenge that can feel overwhelming in the moment and for longer for managing a sudden loss to emergency house repairs to an unexpected medical bill.
The reasons may be common, but that doesn't lessen the shock or lasting impact on your finances. Joining me today from NerdWallet is personal finance expert Kimberly Palmer to discuss how to recover from these shocking expenses and what to do to prepare for next time. Generally, thanks again for joining us. So you have some guidelines for our listeners. What is the number one tip to help in situations when you suffer a big financial shock?
The most powerful tool you can have for yourself to help you get through a financial shock is to have an emergency fund, because basically that is your insurance policy. If you suddenly lose your job or have a huge house repair that you didn't expect any kind of big expense, you can turn to that emergency fund. And of course, not everyone has that all set, but that is the goal is to have an emergency fund, you know, ideally of 3 to 6 months worth of expenses.
But even having a smaller amount can really go a long way toward insulating us from financial shocks, which really are inevitable to experience at some point.
And I read the article that you should tailor your savings to a type of emergency. What does that mean and how can people do it?
I really like this idea of having separate emergency the savings account, so it's not all lumped into one because really there's all kinds of different emergencies we could face. I mean, something really catastrophic, like a job loss or, you know, a death, Something really horrible is a different kind of situation than if there is a sudden house repair or, you know, a bigger than expected tax bill or something like that that's a bit more manageable.
So actually having separate accounts that are tailored towards these different types of situations can just kind of help us be prepared and help that mental accounting of knowing where our money is. So you might have one account that's for catastrophic things that you are putting money into over time, and then you might have another account that's for unexpected bills that pop up.
And it can just give you that peace of mind to know you have some money tucked away for those different kinds of financial stocks.
Okay, so as an elder millennial, I can say that Treat yourself was the refrain the past several years. But just do things that people might seem is a little unnecessary, but that can be something that we probably should stop in order to help these situations, right?
That's right. If you notice that your emergency fund is nonexistent or, you know, it should be much bigger than it is, then you really want to think about maybe cutting back on some unnecessary expenses. So instead of going out to eat at restaurants, instead of making those retail purchases, you can put that money into your emergency savings instead, and it gives you that protection.
So you're more prepared if something does happen that you really weren't expecting and you suddenly have to pay out more money.
Okay. So we are talking about, you know, sudden financial shocks. Are there hardship options for people who might need extra time or some kind of help?
There are so many options out there and it's so worth understanding them just in case you get into this situation. So, first of all, most importantly, if you are ever in a situation where you cannot afford the basics like food or housing, there's a really helpful website 211. org and it helps connect you to local resources, places like food banks, other resources that can help you.
So that's the most important thing. And then a lot of utility companies and even credit card companies, mortgage companies, they have hardship programs. So if you fall on tough times, say you lose your job, For example, you can call and see if you can enter one of their hardship programs, which might give you more time to pay your bills.
I mean, it is worth noting that if you are paying a loan, interest will likely still accrue, but it does give you the extra flexibility of having more time and at least knowing that you're not also hit with late fees and just compounding the problem and making it even worse.
And how do people stay organized and kind of, I guess, keep from being overwhelmed in these situations?
It is so hard because any time you experience a financial shock, it is overwhelming on so many levels. And that's why it's so important to know that you have a support network behind you to share with a good friend or family member when you're going through something really hard. And maybe they can share when they've gone through something similar.
And just knowing that you have that support can really go a long way. Just staying on track and, you know, not really feeling hopeless because sometimes situations that are so challenging, you can almost just want to throw up your hands and say, you know, I don't even know what the next step is, but that friend, that support network can help you figure out the next step.
How about managing, you know, just kind of the stress and strain that people might experience when something like this happens.
It's so challenging and really it can be so helpful to just even acknowledge that mental health side of things and understanding that there is room. Everyone feels stress, everyone goes through these things. And so just having that room to talk openly about it can really go a long way.
And is there anything else that people can do or any other tips that you might ask?
I think what surprised me most is just acknowledging that we all experienced financial shocks at some point in our life. So even though it's a shock, it's really something we should and can anticipate and prepare for. And ideally, it starts with having that built up savings account, but it also just starts with acknowledging that these things happen and it's not something to be embarrassed or ashamed of and it's something we can just confront and work through and get to the other side.
That's great. Thank you so much for this. Listeners, you can go to Nerdwallet and check out the full article. We will have a link in the show notes to that. Thanks, Kimberly.
Thank you.
