THE GENERAL ECONOMY MAY be on the mend, but that doesn’t mean yours is.
Unemployment may be the lowest it has been since 2008 (5.9 percent as of September), and consumer confidence may be higher than in recent years, but that doesn’t mean your own bank account is tracking as well. In fact, you may find yourself feeling low because the economy is recovering and wonder if you’ve done something wrong.
You probably didn’t. It’s just your day, week or year to have some bad money luck. So if you’re in a tight spot and haven’t the foggiest idea how to deal with a financial crisis, here’s your three-step plan.
Survey the landscape. If things just got bad, “take a deep breath,” urges Commie Stevens, managing director of strategic and financial planning for Beacon Pointe Advisors in Newport Beach, California. “People in crisis often want to take immediate action to fix the problem,” she says.
Immediate action sounds logical. If you’re suddenly unemployed, you want to become employed as fast as possible, or if your car’s transmission dies, naturally you want to administer transportation CPR, stat. But you may make your money problems worse if you, for instance, take out a high-interest loan to replace the transmission or jump into the wrong job to bring in some fast cash.
“Taking any financial action the day of the crisis is rarely required and often results in costly missteps,” Stevens says.
Start planning now, however. There is no harm in brainstorming immediately if you’re up to it. That’s how you can talk yourself out of the bad ideas that look harmless at first glance.
Pare your budget. This is the time to do what you can to manage your monthly bills, especially if you haven’t done so in a long time. “Call the bank holding your home and car loans, as well as call your credit card companies to see if you qualify for a lower rate and lower payment on any of your debts and obligations,” says Jon Ulin, a certified financial planner and managing principal of Ulin & Co., in Boca Raton, Florida. “In some cases, a bank may provide clients a hardship allowance to pay a lower rate on their mortgage for a set period of time, of which the balance may be tacked back onto the loan principal.”
But you shouldn’t take a hardship allowance lightly. You’ll get relief now, but you’ll pay for it later.
You should also be careful what you say to your lenders. Asking for a hardship allowance may be the thing to do with your mortgage or vehicle lender, but telling your credit card companies you’re financially pinched is the last thing you want to do. If you share that you no longer have a job or your income has been compromised, your credit card issuer may end your spending privileges or lower your credit line.
This is also the time to try to lower your bills, like cancel cable television or at least drop some channels. If your problem is unemployment, “make every effort to not default on any of your obligations,” Ulin says, “as many employers are now looking at your credit score as part of the hiring process. It’s a wicked catch-22.”
Use what you have. You may feel helpless if your money problems are serious, but you may have more tools in your toolbox than you might initially think, as Zaida Khaze discovered.
Khaze, who lives in Palisades Park, New Jersey, says her family’s financial crisis came slowly. In 2009, she quit her job at a nonprofit organization shortly after her first daughter was born, then she decided to go back to work after her second daughter turned 6 months old. She and her husband, George, an entrepreneur who works in the entertainment industry, bought their home with the idea of having two incomes, and they were beginning to feel the financial effects of being a one-income household.
But in December 2011, shortly after Khaze began interviewing, and right about the time Khaze’s husband canceled their health insurance to save money, their oldest daughter was diagnosed with persuasive developmental disorder, considered a mild form of autism. Their medical bills shot up, and because the physician recommended a restrictive diet, so did their grocery bills. For the next two years, Khaze and her husband’s incomes were extremely tight.
Things have only started improving in the last year or two, as has Khaze’s daughter’s condition. Her PDD diagnosis was recently removed.
But during those two years, Khaze says she began working as a baby sitter through sites like Sitter.com and Care.com. She was able to find immediate work and could baby-sit, as well as take care of her own children, at her house. She and her husband also sold their second car for $9,000, using the money to pay for their daughter’s school. They found a free health insurance program for their kids through the state, and Khaze launched WiggleTot.com, which sells a pad that makes it easier to change a baby’s diaper.
Khaze is 41, but creating businesses is something Ulin says he sees a lot of his older clients doing. “If you’re a boomer nearing retirement in your 50s or 60s, professional reinvention isn’t just for young people,” he says. “We’re seeing plenty of boomers with an entrepreneurial itch seriously exploring startups as an option. These are highly educated people who lost their jobs and realize those jobs aren’t coming back. They’re utilizing their corporate skill sets to run their own companies.”
Of course, starting a business may not be in your DNA. In that case, Ulin suggests looking for work in industries that are hiring, such as health care, in positions that fit your skills. In this case, “you’re not reinventing yourself, you’re redeploying your skills,” he says.
Your financial crisis may not be unemployment or even underemployment. You may have that car with transmission problems or be facing a raft of medical bills you can’t possibly pay. But the point is always the same: Don’t panic, and be wary about grabbing the first solution that comes along. If you aren’t careful, a quick fix may put you in a fix later.