May 17, 2016
How to Overcome a Financial Setback
Successful personal financial management is a delicate balancing act. Not only does daily spending require you to make the most of your household resources, but you are also vulnerable to unexpected expenses. Effective budgeting and spending discipline keep you on track under normal circumstances, but what’s your best approach when major expenditures hit out of nowhere?
Unfortunately, even the best financial planning cannot account for future spending. As a result, cash flow falters when extraordinary costs set in. Home repairs, health emergencies, employment irregularities and other financial challenges are beyond your control, but there are steps you can take to soften the blow when hardship strikes. In fact, you can start hedging against financial distress today.
Maintain a Household Emergency Fund – Though it is easier said the done, at times, the importance of maintaining back-up resources cannot be overemphasized. Even if you can only manage to set-aside a small deposit from each paycheck, you’ll be better off when financial setbacks arise. Whenever possible, use automated withdrawals to ensure your emergency fund grows over time. And always sequester the money from your regular household cash flow, to minimize the likelihood you’ll spend it on bills and groceries. More than one-quarter of Americans don’t have any savings reserved for a rainy day, so you are not alone if your resources lag behind ideal financial health. Fortunately it is never too late to start contributing to a household contingency fund – and though rates are low, your savings will grow as it gains interest.
Use Credit Discretion – Borrowing enables lifestyles we’d not afford without outside funding. Homes, cars and other major purchases would not be possible without financing, which also extends to day-to-day purchases. Protecting your positive credit rating is an essential aspect of your personal financial health, giving you access to financing when it’s needed.
Credit card accounts, loans, and other important credit relationships are especially important during periods of financial distress, when cash flow interruptions can occur. Personal loans and other forms of short-term financing, for instance, fill the gap when financial distress muddles your monetary outlook. If a loan is needed, compare rates and terms online, selecting repayment terms you can afford. The key to moving beyond a temporary financial setback is maintaining discretion, so your debt remains manageable as you stabilize cash flow.
Earn More – Each person’s budget is unique, but managing personal finances always boils down to balance. To achieve long-term financial stability, your outgoing spending obligations mustn’t exceed your income. Maintaining a balanced budget ensures daily expenses are covered and creates surpluses, which can be invested for the future. If your household budget consistently falls short on the supply-side, there are only two ways to achieve equilibrium. Either cost-cutting measures can be used to bring expenses in-line with income, or you can bring in more money, to offset the shortage.
Earning more is not a novel concept – most wish their bosses would share greater wealth. Salary increases aside, there are other creative ways to make more money.
Consulting Opportunities – Provided there is no conflict of interest with a current or former employer, shopping your expertise may result in added income. Retirees with decades of experience are particularly well-suited for part-time consulting employment. Your creativity is the only limitation, so put your skills to work for hire. Accounting specialists, for instance, commonly prepare tax returns to earn extra money during the filing season. And teachers serve as tutors, during summer months, to add cashflow.
Hone Your Skills – Marketability is closely tied to income, so expanding your skill set may be all that’s needed to raise your earning power. In fact, some employers pay for training, so moving to a more lucrative position is often possible, without changing employers.
Spend Less – Money saved is like added income, so when financial difficulties arise it is essential to measure every purchase. For help enduring hard times, redouble household budgeting efforts, with an eye toward reducing waste. By tightening up energy use, grocery spending and travel costs, you’ll see immediate savings and feel as though you’ve earned a pay raise.
Unexpected financial hurdles are a natural part of personal money management. While these short-term difficulties can set you back, there are steps you can take to head-off lasting problems. Your chances are best with an emergency fund in place, to draw from when costs arise. But even when financing is required to get back to firm ground, affordable funding is available to meet your need for cash. Use it wisely, or better yet, establish a supplemental income stream to fortify your household earnings.