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How to survive a personal financial crisis

Life doesn't always move in the direction we want it to. Layoffs, emergencies, and more are all realities we may face. Ideally, none of these situations would ever happen to our loved ones or us, but if you find yourself facing one of life’s hurdles, being financially prepared to survive a financial crisis can make a world a difference.

Are you prepared for an emergency?

Nearly half of all Americans couldn’t cover a $400 emergency, according to a survey by the Federal Reserve. Whether it is an unplanned medical bill, a broken car, or an emergency plumbing visit, you never know what twists and turns life will bring.

For the 78% of Americans who live paycheck-to-paycheck, saving money can seem like an out-of-reach dream. Beginning to save may be difficult but is important for your financial well-being and peace of mind.

No matter where you are in life’s journey, you can make a plan to start saving.

Here are some easy tips to get you prepared should there be a financial crisis:

Make a budget

It’s hard to know where you can save money if you don’t know where you are spending it. Once you have an idea of your monthly bills, can you find other areas of spending traps?

Look at three months’ worth of credit or debit card bills and cut all optional recurring expenses. You might find it was an exercise long overdue. Note the difference between needs and wants. Dining out, fancy hair salons, and paid TV channels and subscriptions might have to go. Once eliminated, you’ll begin to see what a baseline budget would look like.

There are several ways to track your spending. You can create spending categories within your Numerica checking account. To find more information about enabling this feature, log into Online Banking and click on the Reports tab.

Set your savings goal

If you don’t have a savings account, opening one is a great first step. A good rule of thumb is to save 10% of your paycheck. However, Numerica’s golden rule for savings and retirement, would actually be closer to 25%. Start small and build it from there. This is your goal. Make sure it is realistic, measurable and achievable.

At one time, setting aside 3-6 months of living expenses was the standard advice. That's no longer the case. Many financial experts now suggest 6 or even 9 months’ worth of living expenses are needed to offset the loss of income.

When calculating how much you'll need, don't plan for just your largest bills. You'll need enough to cover mortgage or rent and vehicle payments, but you'll also need to pay utilities, credit cards, insurance, and buy groceries. Everything that's in your normal budget should be considered. Estimate a bit higher than your average monthly expenses, and you'll worry less about falling short.

Have a designated account for savings

When you simply earmark money, it’s easy to spend it other places. By opening a savings account, you set the expectation to save. And, when you have money automatically deposited, it’s even easier. Savings accounts like Bonus Saver or Bonus Money Market can also earn you money on your balance, essentially working for you.

It’s never too late (or too early) to start saving. Knowing you have money for those unexpected expenses goes a long way to reducing stress so you can continue to live well. 

If you’re facing unemployment

Managing finances during unemployment is challenging, even with emergency savings. Each time you withdraw money to pay expenses, your cushion gets smaller and smaller. Unemployment benefits help reduce your dependency on savings, but they are temporary. The amount you can receive varies by state, and it's usually a fraction of your normal paycheck.

Job retraining

If your job loss is long-term or permanent, your state may help you train for a different line of work. For example, Washington State offers a program called Worker Retraining, which pays tuition for training unemployed or dislocated workers who receive unemployment benefits.

Information about programs in your state are available through the office where you draw benefits, such as the Department of Labor and Workforce Development.

Unemployment benefits

Depending on which state you live in, the qualification criteria for unemployment may vary. If you have received a severance package, then your benefits likely won’t start until after your last paycheck.

However, it’s important to apply for unemployment benefits sooner rather than later. You may have many options when it comes to applying for unemployment benefits, whether it’s online, over the phone, or by mail.

The unemployment offices in your state will require extensive documentation to determine your eligibility. They will look at things like your employment history from the past 12-18 months including gross pay amounts, outside income, and other personal information. So, make sure you have everything ready before you apply to speed up the process.

Look for other sources of income

If you need to take a lower paying job, or even one or more part-time jobs to make ends meet – do it. You can also earn money by selling unused items on eBay or Craigslist. At this point, earning some money is better than earning none at all. Other sources of help:

Network: Talk to family, friends, former co-workers, etc. They may know of current job openings or may be willing to act as a reference if you apply for another job. Connect with people on LinkedIn.

Update Your Resume and begin a job search: Make sure your resume reflects your current skills and your past and current duties. You can look for a job through your network, local temp agencies, job fairs, classified ads, and online job search engines such as Career Builder, Yahoo Jobs, Monster, etc. Job searching is almost a full-time job, so be patient and put forth your best effort.

Tap your emergency fund if necessary: Everyone needs an emergency fund, and a sudden decrease in income is a good reason why. Keep in mind, an emergency fund should be used for emergencies, and not to maintain a standard of living above your new means. Food, housing, medical insurance, or new brakes for your car qualify as expenses you should use your emergency fund on. Cable, or a new purse – no.

Look to others for help

There is no shame in asking for help when you need it. Again, your network of family and friends may be able to help. Beyond friends and family, there are other places you can go:

Social services: You may be eligible for unemployment, welfare, food stamps, Medicaid, or other services. These may not be enough to live on, but they should help you bridge the gap. The rules for many of these social services vary by state, so we recommend checking with your state for more details.

Check into local organizations: churches, local support groups, and other grassroots organizations have food pantries and other services to help people through hard times.

Contact creditors and your financial institution: List your creditors and contact them immediately. Be honest and realistic when explaining your situation, and ask if they can offer temporary relief. Most creditors are more likely to help when you reach out before payments are missed and things get worse.

Short-term options may include deferring payments or paying less interest. Long-term options may involve refinancing or consolidating multiple accounts, and would most likely depend on the health of your credit score.

Besides creditors, reach out to others you owe on a regular basis. For example, utility companies may have hardship programs offering a break during a temporary financial crisis.

For mortgages, contact your mortgage servicer and ask about options that might be available to avoid foreclosure if the situation doesn't improve soon.

Seek to put student loans on hardship deferral or forbearance to buy time.

Whatever you do, don't stop opening bills. Ignoring them will not make them go away.

Get help

You might want to see a financial planner, especially if the situation isn't dire and you need strategic advice on which accounts to tap. Some planners charge on an hourly basis. If you have a financial advisor or you have substantial assets with a mutual fund company, you might qualify for free advice.

Credit counseling might help. A place to start would be the National Foundation for Credit Counseling (NFCC). Another great resource is the Federal Trade Commission (FTC). You can find FTC advice on coping with debt and choosing a credit counselor.

Be patient with yourself

Life moves, sometimes up, sometimes down. Don’t let circumstances outside of your control affect your self-confidence or feelings of self-worth. All of us experience hardship, and it is how we rebound from these situations that make us into stronger, wiser, more compassionate individuals. And, with a little forethought and pre-planning, challenging situations don’t have to be quite as difficult to move through.

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August 18, 2019

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