How to recover from financial hardship


How to recover from financial hardship


Know your “must-haves”

Make a list of what is considered to be a “must have” expense.  The “must haves” in many households include the cost for shelter,  food, utilities, insurance, child care etc…. Once that is done, resist the temptation to incur anymore costs.  It will be difficult after doing without for so long but it will work in your favor down the road.  Also, work to keep the “must haves” under 50% of your after-tax income.

Always Have Emergency Money

You have probably been told at least once that financially you should keep an emergency fund that covers anywhere from three to six months of your expenses or equals a years salary.  Many of us do not have that saved.  With that said, most emergencies cost under $500.   So when times are hard the goal is to keep $100 in your checking account and an additional $400 in your savings account.  Once you have that,  the idea is to continue to increase your goal.  Soon enough your cushion will be hefty and your worries will be minimal. 

Pay attention to your retirement accounts

It is very easy to dip into your retirement account or to stop contributing to it but for anyone over 30 retirement is around the corner.  No, you are not old.  It is just that retirement is expensive.  If you think times are difficult now,  it can be even harder as we age.  Finding a job can be more difficult and sometimes there are health concerns that can even make is impossible.  So it should be a last resort that you withdraw from your retirement account.  Unless absolutely necessary just forget you have it and continue to contribute if you can.  It doesnt matter if your company does not offer a company match.  Begin with a low risk option to learn (at your own pace) about the stock market .  As you learn more, you can do more to increase your savings.  You will be happy that you have this money down the road. 

How much do you owe?

It is important to evaluate your debt.  Creditors often disappear for a while when you are receiving unemployment etc… Sadly they may return when you begin receiving regular wages again.  The last thing anyone needs is for a creditor to sue you.  So if your medical bills are enormous, you are struggling to make minimal payments on your credit cards, or have already been sued, please seek financial assistance as soon as possible.  Make calculated, well informed decisions on how to rebuild your credit.  Filing for bankruptcy is scary but sometimes necessary.  Talk to the creditors or collectors that you owe and work out a settlement.  Even try a credit counseling service.  If you try a credit counseling service though, choose one that is affiliated with the National Foundation for Credit Counseling. 

Open up credit – yes, again

After all of the stress of getting your life back and paying off your debt, credit may be the last thing you think you want.  Not true exactly. In order to buy a home, have a career in finance, get insurance and so much more, your credit score will be very important.  Rebuilding your credit has everything to do with proving that you are responsible with the credit that you have been given.  If you lost your credit cards, get a secured card.  Secured cards come with its share of responsibility too.  They often require that you make a deposit with the issuing bank.  It will usually be anywhere from $200 to $1,000.  Make sure it is a card with a limit in the same amount that you deposit so you cannot possible go over your limit , incur a bunch of fee or have the card revoked.  Do not charge more than 30% of the limit .  Pay it off in full monthly. Soon enough you should see an improvement in your credit. 

For the most part, take your credit into your own hands.  As always be informed.  Do what you can and make the wisest decision for you.  It will work out.