6 ways to prepare for financial shocks

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