Managing Your Finances Following a Crisis: Sometimes bad things happen to good people, and often your financial fitness is affected by them. From emergency car repairs to a family emergency, an unexpected injury, or layoffs from a job, many of life’s obstacles directly impact your budget.
So how do you manage your finances following a crisis? How do you keep yourself financially fit even in the face of adversity? Here are some tips for you.
Use Savings First
First of all, in an ideal situation you will have an emergency savings fund. That fund will help you cover your expenses in the case of emergency. You will want to use these funds first before you go into debt in any way.
The idea is to have a minimum of three month’s income in the bank, and preferably more. That way you can meet your basic expenses for at least that long. Most Americans have less than that however, and many have no savings at all or a very minimal amount.
While you will want to use savings first, once you have exhausted them, you can then look at other options.
Borrow Only What You Need
There are a couple of different ways to borrow in case of a crisis. One is that you can use your credit cards if you have them. Whatever you have before you reach your limits is readily available and can be used for almost any emergency purchase. If possible though, avoid maxing out your cards. This leaves you no room for other emergencies, and can negatively affect your credit score.
You can also take out loans. It is even possible to get instant personal loans if you have bad credit. Sometimes these loans have lower interest rates than your credit cards and can be a good option. Just be sure that you don’t borrow more than you can afford and that you carefully understand the terms and interest rates before you sign for the loan.
You can request loans for more than you actually need in case expenses are higher than you expect, but save that money just in case, and pay off loans faster than required if possible. This will not only help your budget and decrease your financial recovery time, but will improve your credit score as well.
Leave Retirement Funds Alone
It can be tempting to look at what you have in your 401k or other retirement funds with longing when you are in a financial crisis. However, there are other options, so try to leave those funds alone if at all possible.
There will be withdrawal penalties, tax penalties if you don’t reinvest the funds, not to mention that you will lose some future security by removing funds from your retirement account. There are still ways to leverage those funds though.
Some retirement plans will allow you to take out loans against the amount in your account (for this you will have to get a business checking account) and pay yourself back so that you actually earn the interest you pay back to yourself. This is often a much better option, and lets you both keep your funds, and pay yourself back for what you have borrowed. Contact your fund manager to see if you qualify for this type of loan.
Ask for Help
Rather than going into debt or even borrowing against your retirement accounts, sometimes you can simply ask others for help. Traditionally this has meant asking friends and family for assistance.
This is still an option. If you do borrow from friends and family, just be sure you put things in writing. Treat the loan they offer you like any other debt: make payments on time, offer to pay interest, and communicate if you have issues paying back the debt.
Another option is crowdfunding. Using Kickstarter, Go Fund Me, and other crowdfunding platforms, friends, family, and those you know on social media can contribute to help you in your time of crisis. Often you will be surprised by their generosity, and it can make dealing with a crisis much easier. This is also a good way to get other kinds of support as you are letting friends know you are struggling.
No matter how you ask for help, be grateful for what you receive. Not everyone can give, but they can spread the word. Sometimes being in debt to friends and family is better than a traditional lender, as they can be more flexible.
Reduce the Crisis Bill
Have a family emergency? Many airlines have reduced flight options even if you have to make a purchase at the last minute. Hospitals have payment plans and income-based repayment options. Other companies offer special options as well, and your bank may even offer specific loans for emergencies that carry better terms and lower interest rates.
You can also, if you have good credit, apply for credit cards that have low introductory rates or even zero interest for a certain amount of time. These methods can help reduce the overall cost of any debt you go into and any bill associated with your crisis.
Financial fitness is important, and it is harder to maintain during a crisis. With the right strategy though, you can weather the adversity and come out in just as good or better shape than when you went into it. Use these tips to help you get started.
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