3 Causes of Money Emergencies and How To Be Prepared for Them, According to Ramsey Solutions

When it comes to your financial health , being ready for unexpected problems is crucial. The Federal Reserve released a report that stated 37% of adults wouldn’t be able to cover an unexpected $400 expense without selling something or going into debt.

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A different report conducted by Ramsey Solutions interviewed over 1,000 U.S. adults to gain insights about their financial health. According to the study, 40% of those who participated admitted to having an unexpected financial emergency in the past three months. It also found that the average American’s home, car and health are the leading causes for emergencies.

Preparing for the worst case isn’t fun, but doing so will give you peace of mind. Here are the main causes of money emergencies and how you can do to prepare for each one .

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Car Issues

The Ramsey Solutions report detailed that the top emergency Americans face is car problems, with 41% of participants saying they’ve dealt with them in the past three months. In 2024, the average age of an individual’s car or light truck is reportedly about 12 and a half years old. As vehicles age, they require more maintenance and upkeep. Likewise, they’re more prone to unanticipated problems.

Adding to this financial problem is an expensive new and used car market. While prices have slightly improved, purchasing a new car is extremely costly. As of January 2024, the average price of a new car on Cars.com was $49,096. Those looking to spend less and purchase a used car have fewer options. Cars.com has about 800,000 fewer used cars than a year ago, and the average price of a used car comes out to $28,859.

Taking care of your car is the first way to minimize the possibility of a car issue. Scheduling routine oil changes, tire rotations and brake checks costs money but will reduce the probability of more expensive repairs down the road. However, no matter how careful you are with your car, breakdowns can happen.

Building an emergency fund for your car is an excellent way to get ahead of problems before they happen. Setting aside $500 to $1,000 will allow you to cover minor repairs when they crop up. To prepare for major repairs, consider saving up to 2% of your car’s value each year.

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Medical Bills

The second most unexpected emergency plaguing Americans, according to the Ramsey Solutions report, is medical bills at 37%. The Federal Reserve backs up this claim, reporting that 23% of adults had major medical bills in the past year, with a median amount between $1,000 and $1,999.

Apart from adding savings to your emergency fund, you can prepare for medical bills with a health savings account (HSA). An HSA is a tax-advantaged savings account that helps you with your medical expenses. Contributions to an HSA are tax-deductible, and you can invest them without incurring taxes on the growth.

Any money withdrawn for a qualified medical expense is tax-free to further enhance the benefit. Regularly contributing to an HSA is a great way to remove the pressure of unexpected medical problems.

Home Repairs

Home repairs are an issue that 34% of the Ramsey Solutions report participants dealt with in the past three months. With expenses such as utility bills, insurance, maintenance and property taxes, Zillow and Thumbtack estimate that the average U.S. homeowner spends up to $14,155 yearly or $1,180 monthly on top of their mortgage. These prices can be even higher if you live in major cities like San Francisco or New York.

If you’re a homeowner, it’s vital that you’re financially ready for things to go wrong with your home so you don’t end up in debt. Similar to preparing for car issues, preventative maintenance can save you a lot of money in the long run. Keeping up with simple tasks and checks such as sealing windows and regularly checking for roof damage can reduce the likelihood of an expensive issue developing.

Home repairs can vary from a leaky roof to a malfunctioning HVAC system, making it difficult to determine just how much you should save. Some experts suggest a 1% rule, where a homeowner sets aside 1% of the home’s value annually to budget for unexpected problems.

Another savings solution is to put away $1 for every square foot of your house. Building up an emergency fund and tackling home repair projects that you’re able to do yourself can help you keep costs down on home repairs.

This article originally appeared on GOBankingRates.com : 3 Causes of Money Emergencies and How To Be Prepared for Them, According to Ramsey Solutions