Just when you least expect it, financial disaster strikes: You lose your job. A family member needs an expensive medical procedure Or your partner becomes disabled or dies. And, suddenly, you’re scrambling.
In moments like these, you want your focus to be on the actual issue — being present, supporting your family and dealing calmly with the crisis at hand. You don’t want Money Stress on top of all that.
So how do you prepare yourself? And what steps should you take when something does go wrong?
Here’s the action plan you need.
Slash expenses like it’s your job
When your income suddenly dries up or your expenses soar to cover the cost of a crisis, taking steps to tighten your finances is essential.
- Eliminate non-essentials entirely. You may be familiar with this as your Baseline Number, so you should be aware of what you can and cannot stop each month. If running out of money is a very real concern, get serious about cutting any costs you don’t need to survive. Cancel your cable, skip the restaurants, say no to gift-giving and so on.
- Pare down on the essentials. Some costs are critical to survival, but you can get creative in reducing them going forward. Cut down on food costs, minimize clothing expenses and look into ways to limit your housing bills.
- Claim free money. Grab the money that’s already being handed to you. Cash in any cash back you have sitting on your credit cards. Clip and use coupons religiously. And shop only when you can pair those with a great sale.
Identify support resources
In times of crisis, take full advantage of any social or government programs for which you’re eligible — unemployment checks, Social Security payments, FMLA, state-sponsored disability leave, food banks or SNAP, housing assistance and so on.
Additionally, your neighborhood may offer specialized programs. Many libraries, for instance, provide free job-search classes, résumé reviews, computer access and reading materials for job-seekers. And job fairs may be held at local colleges or community centers.
If you’re still employed, check with your Human Resources department to nail down the benefits available to you. You may have access to paid time off, unpaid leave, employer-sponsored insurance coverages, medical counselors, doctors on call and more.
Maximize your benefits
If you find yourself without a job, get to know your severance package inside and out. What pay and benefits are you entitled to receive? How long do they last? Create a financial plan accordingly. And ensure that your employer sticks to the deal that’s been struck.
If you’ve lost your job and are scrambling for health insurance coverage, you have a variety of options available to you. Apply for your own policy through the Marketplace, sign up for COBRA coverage through your former employer and look into eligibility requirements for programs like Medicaid and CHIP.
Facing major property damage? Or a health crisis, disability or death? Pull up your policy declaration documents for the relevant insurance coverage and get familiar with your rights. Use your paperwork and customer service agents to help you find covered doctors, understand your deductibles and copays, identify whether you need referrals and so on.
Steer clear of risky money moves
Feeling panicked when facing a life crisis is natural. And worrying about the money angle can tempt you to make some ill-advised financial choices. Instead, stick with these fundamental rules:
- DON’T cash out your investments. You’ve worked hard to build your Freedom Generator as a resource for your future self. So don’t turn to your Income Generator as a first line of defense against money woes.
- DON’T pull money from your retirement savings. Specialized accounts like IRAs and retirement plans like 401(k)s often come with steep penalties for taking early withdrawals or even loans you intend to repay. Don’t add to your financial troubles by setting yourself up for high fees, extra income tax owed and a decreased balance in your Growth Engine.
- DON’T rely on high-interest loans and lines of credit. If you’re struggling to make ends meet, the last thing you need is an exorbitant interest rate breathing down your neck. Turning to credit cards and predatory loans will quickly land you in debt that may only get worse over time.
So what’s your very best money move during a crisis? Turn to the safety net you’ve already built — your well-stocked emergency fund and the suite of insurance coverages you’ve put in place. A solid safety net will carry you through most of life’s messy financial times. And you’ll have priceless peace of mind during the good times as well.
image credit: Bigstock/Morganka
Dr. Tony is the co-founder of MindShift.money and the best-selling author of three books on personal and business finances. Having achieved Financial Freedom at 27, Dr. Tony believes that through Financially Fit Bootcamp and Cash Flow Cure everyone can get there. He has made it his life’s mission to help others live a life where their money works for them—not the other way around.