Carla Seely Column: Crisis Management

November 21, 2022

Carla Seely Bermuda October 2018[Written by Carla Seely]

Have you ever been in a situation where you think you’re finally doing well, your finances seem to be coming together, you start to have a positive outlook on your financial future, and then – wham! – something unexpected knocks you back to square one?

If you speak to anyone who’s been in an emergency situation like a fire, flood, or having multiple household appliances cease functioning within a week of each other [which happened to my husband and I], they’ll say the same thing: “I never expected this to happen!” or “I didn’t plan for this!” The sad truth is, the biggest challenge with emergencies is that you’re not only dealing with the emotional turmoil of the event, you’re also dealing with the financial aftermath.

A large segment of the working population will wait for their paycheck to hit their bank account, spend every last dollar, and then patiently wait for the next paycheck to arrive. The greatest obstacle when you live paycheck to paycheck like this [and some of us don’t have much of a choice] is that you don’t have a chance to build any savings; when an emergency occurs, you don’t have the financial resources to cover it.

So, how do you manage your money and plan for unexpected events? Consider establishing an emergency fund to avert such a crisis.

The basic purpose of an emergency fund is to cover you financially and fill in the gaps, which include unexpected expenses and unexpected loss of income. For example, if you’ve just found out you’re going to be made redundant, or your car breaks down, or you’ve realized your child’s school costs more than anticipated, these would all be considered unexpected financial emergencies. Having an emergency fund would help solve these issues.

However, an emergency fund should not be used to pay for vacation costs, or to buy any type of gift or present, or to pay to renovate your home. In addition, an emergency fund should not involve using your credit card or taking out a line of credit – if you don’t have the money to pay outright to begin with, then it’s unlikely you’ll have the money to pay off the debt.

So, where do you start? If you don’t yet have an emergency fund or are currently finding it difficult to save money, the key is to start small and understand that accumulating one month’s worth of expenses will take some time. When you begin to build an emergency fund, we suggest that it’s large enough to carry you through three to six months’ worth of household expenses – however, if you have a job that’s commission-based, you should work toward saving eight months’ worth of household expenses.

Also, instead of setting up a separate bank account to build those emergency funds manually, consider saving through your pension with additional voluntary contributions. Ask your employer to take out an additional 1% or 2% off your paycheck – since the funds are automatically set aside in the background, it naturally discourages you from spending them beforehand and your emergency fund will be there when you need it in no time. Plus, if you’re lucky enough never to need those funds, then you’ll have increased your savings for retirement – which I would consider a double win!

It’s important to remember that life happens; no one is immune to the unpredictability of it. That said, you are not powerless in these situations. You can plan financially by establishing an emergency fund to provide you with the time you need to make the necessary financial adjustments in your life and keep yourself from financial ruin when a sudden gap develops between your income and expenses.

- Carla Seely is the Chief Operating Officer at Freisenbruch. If you would like any further details, please contact or call 441 297 8686.

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