Surviving a Financial Crisis
With so much attention from the events of COVID 19 virus, it feels like the world is in total chaos and not knowing how bad the economy will end up is causing terrible stress and anxiety on everyone, not only mentally, physically, but also financially.
The job market is tough. Many companies and small businesses are laying-off their employees or cutting back hours while trying to reduce their overhead. It’s no wonder so many employees have anxiety and stress as they watch their retirement funds decline.
A financial crisis can happen to anyone as a result of a job lay off, pay cuts, loss of income, illness, divorce or an unforeseen emergency. No matter what the situation is, you must be prepared in case of a financial crisis.
“Have I not commanded you? Be strong and courageous. Do not be afraid; do not be discouraged, for the LORD your God will be with you wherever you go.”
If You Are Married
If you are married, you must communicate with your spouse regarding your finances and setting up a workable plan. Financial problems are a leading cause of divorce. A big part of that results from lack of communication. As painful as it may seem, you must do this.
If You Are Single
If you are single, talk to a friend, parent or someone you can trust. This will help you devise a plan and be accountable to stick with it.
Remember that two heads are better than one.
When facing a financial crisis, stay calm and don’t panic. The first thing to do is to quit spending money. Many people go into a denial mode and continue spending hoping for things to go back to normal. Some people become paralyzed with fear, which causes more difficulties. Now is the time you need to think logically and make wise financial decisions.
The bible says, “For God hath not given us the spirit of fear; but of power, and of love and of a sound mind.” II Tim. 1:7 KJV. A sound mind will help you make a plan.
Prioritizing Your Bills
Many times when we experience a drop in income, it is difficult to know what bills to pay first. Whether you are having problems paying your bills or not, prioritizing your bills will help you take control.
Three Categories for Paying Bills
Essential bills are survival bills and should be paid first. Mortgage or rent payments, utility bills, and food are included in the essential category. Next would be mandatory insurance such as car insurance. Medical needs could also be put into this category. Child support and any loans such as automobiles, that are secured or used as collateral to obtain the loans should be included with the essential bills. Tithing is also something to look at as being essential.
Nonessential bills are debts in which no immediate consequences could occur if paid late. They are unsecured and include credit and charge cards, attorney, medical and accounting bills, and subscriptions. These should be paid after all the essential bills are paid.
Other bills that you may not be sure about are life insurance, private schools, childcare, health clubs, gyms, country clubs, or clothing must be put into either the essential or nonessential category.
By prioritizing your bills in the order of what should be paid first, you will begin to get in the habit of making sure your essentials are always paid first.
Communicating With Your Creditors
Mortgage and Rent payments
If you are unable to make your mortgage or rent payment you may have options with your lender or landlord.
During this crisis the government is stepping in to have mortgage lenders that you make your home loan payments to offer certain programs to assist the homeowner or landlord to defer payments. Make sure you understand the terms before agreeing. There could be ramifications later.
Auto Loans
Contact your lender if you have an auto loan and are falling behind in your payments. Some lenders will allow you to defer your payment, which means the payment for that particular month doesn’t have to be made. The deferred payment is added to the end of the contract. The important thing is to call them before they call you.
Utility Bills
Contact the utility company to work out a payment plan. They will review your hardship and devise a plan with you to help.
Credit Card Companies
Call each of your credit card companies to see if they can work out a payment program with you during this time.
Make sure you take notes of your conversation listing the date and person you spoke with. Whatever arrangement you make, be sure and get it in writing from the creditor before you send in any money.
Controlling Your Spending
Keeping your spending under control is the most important thing you can do. You don’t want to be impulsive with your purchases. Pay cash when possible and keep your credit cards for emergencies.
Do’s
Do use your credit cards wisely. Groceries and vital purchases such as medication, and survival may be necessary.
Do make minimum payments on your credit cards but try and keep purchases down unless for survival needs. (Now’s the time to keep your cash and not pay off debts)
Do find ways to get more cash to sustain you such as:
Refinancing your home to lower your payment and/or get cash out with the equity in your home.
Look around your house to see what you can sell.
Sharpen your skills. This may be the time to use your gifts, talents and hobbies to earn extra money (or start a new business)
Do keep as much money in the bank as you can.
Do evaluate your cable bill, and cell phone plans to see where you can cut back.
Don’t
Don’t touch your retirement accounts.
Don’t sell your investment accounts. The market has a history of going up.
Don’t go on an online shopping spree. It’s tempting, but don’t do it.
Don’t confuse “want” with “need”.
Don’t panic! Stay focused and follow through with your plan.
When you are going through a difficult time in your life, remember that things won’t always remain the same. Your circumstance will eventually improve. We all have different seasons in our lives and some are more trying than others. Faith, hope, and a plan will help you stay focused and remember – things will get better. God is in control, even when it feels out of control.
By: Deborah McNaughton
Deborah has written many books, including: Money Trouble: Surviving Your Financial Crisis, and The Get Out of Debt Kit. She and her husband, Hal, serve at The Cause Church on its Leadership Council.
If you have questions they will be happy to assist You can email them with your questions at:
Deborah McNaughton (Budgeting, credit information, problems, mortgages) Deborah@legacymoney.com
Hal McNaughton (CFP financial adviser, IRA’s 401k, 403b, investment accounts) Hal@legacymoney.com