Wednesday, July 20, 2016

5 Emergency Expenses You're Probably Not Prepared For


If you don’t have savings, these emergencies might tempt you to take a cash advance on your credit card. Nothing is an emergency if you have the cash to deal with it. In fact, not having the cash is what makes it as emergency expenses. Now we all have a human tendency to underestimate the potential for disaster. Here are some emergencies that will catch us off-guard and tempt us to take a cash advance on a credit card.
 
1. Being Injured Overseas
Most Singaporeans assume nothing will go wrong on vacation – or that if it does, our travel insurance will take care of it. Most of the time, the “disasters” we have in mind are lost luggage, cancelled flights, or smelly coach buses. Not many realise how expensive a medical emergency gets. In most developed countries, health care programmes subsidise anywhere from 50% – 70% of medical costs. In Singapore, for example, schemes like MediSave subsidise as much as 80% from hospitalisation bills. If you’re a tourist however, you won’t get any of those subsidies. In a country like the United States, a single day of hospitalisation (private hospital) currently costs between S$2,500 to S$3,100. This does not factor the costs of medication, surgery, the ambulance ride, consultations, etc. In the event of critical emergencies (e.g. you need to be medically evacuated to a hospital by air, during a skiing injury), even travel insurance of S$50,000 can be wiped out many times over. For this reason, wiser travellers are alright with the idea of buying more than one travel insurance policy. It’s especially worth considering if you engage in sporting activities such as scuba diving, rock climbing, etc.
 
2. Sudden Retrenchment
The free market is a cruel place, and even established businesses can fall apart in as little as a year to a month. Most Singaporeans don’t expect this, as we assume it is a slow process: first we will see the sales drop, and then management will have tense discussions behind close doors, and then in the year long process of the company undergoing its death throes, we will have time to send out resumes and find a new job. However, this is not always the case. During the 2008 global financial crisis, and the Asian economic recession in ‘97, companies did downsize on short notice. Many employees were given as little as a month’s notice before being severed. As you can imagine, this was a disaster for those who lived paycheck to paycheck. No matter how secure you think your job is, always keep emergency savings of about six months of your income. This will ensure that, even if you are suddenly downsized, your life will not become a series of canned beans and re-used coffee powder before your next job.
 
3. Credit Card Fraud
No one expects credit card fraud, but when it does happen the cost can be astronomical. Remember that most credit cards have limits set at twice or four times your income – if a thief maxes out your cards, and your bank holds you liable, you can face a debt that takes years to repay. Assume, for example, that you earn S$3,500 a month. A stolen credit card could be maxed out at S$7,000, growing at an interest rate of around 2% per month. In three years, this is about S$13,000+. Now the good news is that, according to Monetary Authority of Singapore (MAS) guidelines, the maximum liability on credit card fraud is just S$100. However, there are cases where people have been held liable for the full amount due to negligence, or due to certain technicalities (e.g. the bank decides that you were late in reporting the situation. Note that the bank defines what amount of time is reasonable). For these reasons, always keep your credit card secure. Do not give the card details to anyone, especially over the phone, and avoid pre-saving the details on websites. You can also buy insurance against credit card fraud. As an alternative (if somewhat inconvenient) safety measure, some people choose to purposely set a lower spending limit on their credit card. This controls their shopping habits, and places a cap on the maximum possible loss in the event of theft.
 
4. Urgent Home Repairs
This is a cost that catches many Singaporeans off-guard, and often ends up in expensive credit card debt. The two biggest home maintenance emergencies are related to plumbing and electricity. When your pipes are not working (or even worse, they burst and flood the toilet or kitchen), you will probably not be picky about price. There’s no time to compare the best plumbing rates when your living room is doing a good impression of an indoor pool. Even after it’s fixed, many homeowners are stunned by the damage inflicted. Carpets may need to be dried out (around a S$300 service, not including delivery), antique wood furniture can be ruined, paintings might be trashed, and wet electronics may need replacement. Even after it’s fixed, many homeowners are stunned by the damage inflicted – carpets may need to be dried out (around a S$300 service, not including delivery), antique wood furniture can be ruined, paintings might be trashed, and wet electronics may need replacement. The second big emergency is power failure. The concern is not that you can’t watch television or use your air conditioning, those are minor quirks. The issue is that the food in your refrigerator will go bad – chicken or fish is a dangerous meal after six to seven hours in our tropic heat. Again, you often won’t have time to compare prices and be picky. Home insurance is your best bet against these emergencies, but you should always have cash on hand to deal with them fast. These kinds of damage tend to “spread”, as the rest of your belongings will be affected.
 
5. Dental Problems
The occasional toothache isn’t a huge problem. But every now and then, we get hit by a huge bill for things like a root canal. These can seldom wait, due to the pain and discomfort involved. People are seldom prepared for this, due to the suddenness of the pain – if you’ve had a toothache before, you probably know how quickly it happens; you can be fine one minute, and in agony the next. Most major dental costs range from S$700 and up. It won’t destroy you financially, but it can be serious disruption to your plans on short notice. This is why it’s important to have an emergency fund saved up, or at the very least access to a personal loan or line of credit that has fast approval. Choosing to suffer a bad tooth for a few days is one of the experiences you will happy to live without. This is why it’s important to have an emergency fund saved up, or at the very least access to a personal loan or line of credit that has fast approval. Choosing to suffer a bad tooth for a few days is one of the experiences you will happy to live without.

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