So you’ve run into a difficult situation which required racking up some credit card debt, using up more than half your emergency fund, or dipping into another savings account. The freelancing lifestyle doesn’t always mean easy street in the financial department, so you need to know how to handle emergencies without sinking into deep debt.
If you do end up going over your budget because of an emergency, there are several things you can do to get your finances back on track. Here are three of them:
#1: Make a grand total of extra purchases. This can be a painful process, but you need to take a good look at the damage from the emergency situation. Make a list of all of the expenses you covered that weren’t planned for so you have an accurate figure of the damage. Just putting it down on paper can help you get a better handle on the situation.
#2: Categorize this extra expense as a “debt to self”. Now that you know what the total amount of the extra expense is, you can create a plan to pay yourself back for the mistake or emergency situation. Divide the amount by 12 and see what number you come up. Can you realistically pay yourself back this amount over the course of the year? If the answer is ‘yes’, plug it in to your budget as another monthly expense until your “debt” is paid down. If you have some more disposable income, consider whether it would be wise to pay down this debt faster. The key thing to remember here is you’re playing catch up on this extra expense at a rate that is realistic, and one that you are comfortable with.
#3: Modify your budget. If you’re working with a very tight budget, it might be time to cut down on extra expenses elsewhere so that you can pay back your “debt” quickly. Remember you’re now in “recovery” mode, so you’ll have to be resourceful to get yourself back to the pre-emergency stage. You can do this by increasing your income until you’re all caught up, or reducing expenses. Sounds obvious, but you won’t get a handle on your budget until you actually do it and make the changes.