Life Happens, Accepting Your New Norm
Despite all of our best efforts, sometimes in life, things just go sideways. A major illness, lawsuit, lay-off or death tosses us into an emotional and financial torrent we didn’t see coming. Suddenly, we may find ourselves struggling to keep it all together. And while many strategies exist for climbing out of a financial hole, it’s important to be realistic about where you are now, and do as much as you can to protect yourself and your family from complete financial ruin.
1. Homestead Your House
Many mortgage lenders consider a homestead declaration standard paperwork when a buyer fills out loan docs. And some states automatically “homestead” a house at the time of purchase. Depending on where you live, you may be eligible for a homestead exemption that protects your principal residence from a forced sale brought by creditors or banks for non-payment. Homesteading does not protect against foreclosure of your home, by the bank or mortgage lender who holds the Deed of Trust, or a forced sale from judgments for child or spousal support. Homesteading does not apply to secondary residences or recreational vehicles either. If you haven’t already done so, now’s the time to fill out and file for a homestead exemption. Avoid costly services that charge inflated fees and do the paperwork yourself for much less.
2. Refrain from Wiping the Slate Clean
When faced with a financial crisis, it may be tempting to payoff all major debts with a lump sum payout from an insurance settlement, severance pay, employee stock or pension fund. While reducing financial liabilities at this time is important, it might be better to make small minimum payments on debts, at least for a while. The information you currently have is all you you’ve got to work with. Further down the road, you may need that cash to live, if your temporary circumstances become long term.
3. Protect Your Retirement
If at all possible, try not to tap into retirement accounts or 401(k)’s to plug holes in your finances. While sometimes it’s absolutely unavoidable, you’ll incur heavy income tax consequences and penalties, besides set yourself up for financial difficulties later on, when you’re older and can no longer produce income. Better to rollover retirement funds to an IRA or leave the money in an employer plan if possible.
4. Protect Your Auto from Repossession
Nobody wins when your auto gets repossessed, including the lender who’s forced to charge-off unpaid debt, or the dealer now stuck with a car that’s depreciated in value. You most of all, lose a much needed vehicle, necessary to help you climb out of the financial crisis you’re facing.
There is hope however. Auto lenders are often willing to work with you to refinance loans and lower payments, offer payment extensions, or change payment due dates to help accommodate your new situation. This is more often true if you’ve already established a history of on-time payments, and have not had an auto repossessed in the past. The key is to contact your auto lender immediately, as soon as you know you might miss an upcoming payment.
5. Get Help as an Organization Member
Some organizations will temporarily help members pay their bills during times of financial hardship. Active members of the armed services, veterans, and widows/widowers of veterans can often renegotiate home or auto loans, extend loans, or apply for deferred payments when faced with a financial crisis. Other non-profits, charities, or religious organizations may assist with utility payments, food costs, or housing.
6. Continue to Maintain Your Home and Auto
It seems like a simple thing to remember, but when faced with serious financial difficulties many people fail to continue routine maintenance on their home or auto. While you no longer have the financial resources to professionally detail your car, you must keep up regular engine maintenance including oil changes and belt and fluid checks. If you fail to give attention to these small, affordable areas, you could face catastrophic costs later when your engine seizes up or your brakes burn out. Routine maintenance also applies to your home as well. You may not be able to afford to replace windows or to redecorate, but you can continue to clean out heating and air conditioning filters, drier hoses and vents. Even adding weather-stripping around drafty doors and windows, and fixing toilets that constantly run, can payoff in the short term and save you major repairs later.
7. Ensure All Family Members are Covered Medically
When financial hardship strikes, it’s critical that everyone in the family either gets some type of healthcare coverage, or remains covered, if at all possible. It might save some money in the short-term to abandon medical premiums, but it could further complicate an already difficult situation, if a family member gets injured or sick. If an employer sponsored healthcare program is no longer available, or continuation coverage is not affordable, other options may still exist. Some school districts have adopted school-based healthcare programs and most colleges and universities offer health services that may include immunizations, wellness checks, gynecology exams and counseling services. Low cost or free prescriptions may be available as well.
Many states offer low-income qualified residents healthcare plans, and some pharmaceutical manufacturers participate in copay assistance programs for particular medications.
8. Cancel Unnecessary Memberships and Subscriptions
When a ship pitches and rolls dangerously in a storm, the decision to throw cargo overboard to right the vessel is sometimes the only thing to do. While your previous life may’ve been filled with gym memberships, premium channel TV, and snack-of-the-month club, you no longer have the funds to support these things. Suspend any and all memberships and cancel unnecessary subscriptions to magazines, gaming sites, movie networks and recreational facilities. These are secondary expenditures paid for with disposal income that will have to go on hold for the time being.
When life takes us somewhere we don’t want to go, we have to deal with our circumstances head on, create a new temporary norm, and work within it. While it may take some time to better our financial position, we can take the steps necessary to protect ourselves from complete financial ruin.