How quickly could you come up with $400? Many of us would need to borrow it.

If a financial calamity like a layoff or illness hit you today, would you be ready?

Brian Watson suddenly saw his hours cut back at his job as a customer service representative.

The abrupt loss of income left him fighting for financial survival. In a panic, he got a credit card to help in the interim, but he knew that was a bad idea.

“I was having trouble sleeping when I lost the hours,” Watson told Money Talks News.

He’s not alone.

The Federal Reserve System’s latest annual report on the economic well-being of U.S. households indicates that 18 percent of households faced a financial crisis in 2015. The top financial hardship experiences were:

  • 36 percent: Health emergency
  • 25 percent: Loss of a job
  • 18 percent: Reduction of work hours and/or pay
  • 13 percent: Loss of spouse’s/partner’s job
  • 12 percent: Reduction of spouse’s/partner’s work hours and/or pay

” … [M]any Americans remain ill-prepared for such a financial disruption,” the report said.

The Federal Reserve asked how people would handle a disruption that would require them to come up with $400. Just over half (54 percent) reported they could fairly easily pay the expense entirely using cash, money in their checking/savings account or on a credit card that they would pay in full at their next statement. But nearly half, the remaining 47 percent, said they could not pay the expense or would borrow money or sell something to pay it.

What can you do when an income emergency hits? Take these three crucial steps, says Money Talks News founder Stacy Johnson:

Step 1: Assess your situation

Take stock of your income, bills and savings. Create a baseline budget — the absolute minimum required for food, shelter, utilities and debts (such as auto loan payments or minimum balances due on credit cards).

Compare this with your household’s current income. If you see you’re not going to make it, turn to a nonprofit credit counseling agency for some free help. Counselors can help you develop a workable budget, and maybe negotiate with your existing creditors.

Step 2: Track your spending

See where your money is going now.

Our partner PowerWallet offers a free expense-tracking service that helps you get a handle on your funds.

Then look for ways to save.

For example, take a bite out of food bills by cooking at home, bringing lunch to work and doing potlucks with friends instead of going out to restaurants.

Trim your transportation costs with a carpool, or walk or ride your bike more.

“Do whatever you can to use that car less,” Johnson says.

AAA’s latest annual driving costs study estimates that a driver spends 57 cents for each mile driven — about $713 per month — to cover the fixed and variable costs associated with owning and operating a car. Reducing mileage by one-quarter would save about $178 per month, on average.

It made a difference for Brian Watson, the customer service representative who suffered a sudden loss of work hours.

“I started combining trips, which allowed me to decrease the amount of gas that I used in a month,” he said.

Step 3: Trim your monthly expenses

Take a look at your utilities, cable and phone bills. These may be small, but they add up. Look at each one individually, and see where you can cut.

There’s plenty you can do to cut the cost of cooling a home, from using awnings to turning up the temperature setting on your air conditioner. You can negotiate lower cable bills and find easy ways to save on your cellphone bill.

Plan ahead

You can also take steps now to prepare for any financial crisis by building an emergency fund:

  • Pay down debt so you can redirect your income toward savings.
  • Save any windfalls, even of small amounts of cash.
  • Track your spending and find where you can reallocate money toward savings.
  • Refinance your debt to increase your cash flow so you can save more.

For more ways to build up a cushion, read “10 Ways to Save When You’re Making Minimum Wage.”

Are you comfortable with your level of emergency savings? Share with us in comments or on our Facebook page.

Budgeting & Saving, News

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Article last modified on May 22, 2017. Published by Debt.com, LLC .