Sooner or later, everyone deals with money problems. It’s not a question of if, but rather when. This can be a scary, panicky time. But if you prepare for financial problems ahead of time, you can survive and get through any rough spot.
Different circumstances trigger financial problems. Some people experience money woes after going through a divorce and having their income cut in half. Meanwhile, others face financial problems after a job loss because unemployment compensation doesn’t cover all of their expenses. Then again, you might get sick and be unable to work for a few weeks. Since most people live paycheck to paycheck, many can’t survive more than a week without income.
Therefore, you need to have an honest discussion with yourself and assess whether you can survive a financial curveball at present. If you can’t, there’s plenty you can do to get your personal finances on track.
- Build an emergency fund
Financial experts have been preaching the importance of an emergency fund for years. And if you haven’t taken their advice yet, now’s the time to get serious.
An emergency fund can be the difference between surviving a financial hardship and facing financial ruin because of a hardship. Ideally, you should aim for a three to six-month emergency stash. But if you’re only able to save one or two month’s worth of income, this is better than nothing.
The secret to building an emergency fund is paying yourself first. Before you spend a dime on bills, entertainment or any other frivolous purchase, you need to put a percentage of your paycheck into an emergency fund — preferably a high-yield savings account so you can maximize your return. You can also give your emergency fund a boost by saving any free money you receive like a tax refund, gift money or a year-end work bonus.
- Pay off your debts
Credit cards make it easy to satisfy every want and desire. But if you don’t pay off the balance in full every month, you’ll end up with debt and a lot of extra bills. If you lose your job or can’t work for other reasons, the last thing you need are extra expenses. It might be harder to keep up with credit card and loan payments; and if you fall behind on payments, your credit score will suffer.
The less you owe, the easier it’ll be to survive money problems. Develop a plan for getting rid of your credit card debt — and any other debt for that matter like student loans, auto loans and personal loans. There are several ways to eradicate debt such as the snowball method, or you can negotiate a lower interest rate with your creditors and then pay more than your minimums. Get into a habit of only charging what you can afford, and paying off balances every month.
- Get life insurance
Nobody wants to think about an untimely death, but it can happen. And if you share household expenses with a partner, it’s important for both of you to have a life insurance policy. The death benefit from a life insurance policy does more than cover the cost of a funeral and burial. You can pay off your loved one’s debt, plus the death benefit provides your family with financial support during this tough time. You can also pay off your mortgage, or save some of the funds for future expenses, like your children’s college education.
- Know your mortgage options
When experiencing financial problems, you might get behind on your mortgage payment. This can be a scary time, as you might fear losing your home. According to the bankruptcy attorneys at Doan Law Firm, if you’re a struggling homeowner, “there are many options available to help you avoid foreclosure and keep your house at a payment you can afford.”
Some struggling homeowners think foreclosure or bankruptcy is the only outcome if they get behind on payments. However, a mortgage modification is specifically for homeowners who experience financial hardship, and by means of a modification you might qualify for a reduced interest rate and a lower monthly payment. This improves affordability and helps you avoid foreclosure.
- Buy disability insurance
If your employer offers disability insurance, take advantage of this provision and get a policy. Disability insurance provides financial support if you’re unable to work for more than two weeks because of an injury or illness. Policies vary, with some paying compensation up to 50% or 70% of your regular income. This can alleviate some of your financial stress, so you can focus on getting better.
Financial problems might seem like the end of the world. However, if you take steps to prepare your personal finances before an emergency, it’ll be easier to pull through a financial crisis. But if you haven’t prepared and you face money problems, don’t panic.
Contact your creditors to see if you qualify for forbearance, which temporarily suspends monthly payments. Interest will continue to incur, but you won’t face late fees or negative credit activity. Selling things you don’t need also helps drum up cash. And as a last resort, you can borrow from your retirement accounts. Just make sure you replenish the account once you get back on your feet.
