Ray’s Take Sometimes bad things happen. Despite careful financial planning you can simply hit something you’re not prepared for. The fact is no matter how well you plan for financial security, something outside of your control can happen and threaten your plan, your lifestyle, and potentially your solvency.
What do you do then?
You start by reviewing your discretionary expenses: cable, high-speed Internet, morning frappuchinos, entertainment – they all probably have to go. You may need to consider more drastic measures like selling your car or downsizing your home. Big-ticket purchases will need to be delayed.
However, cutting back only gets you so far and your situation may not allow for a gradual work out. You may need to think about borrowing just to keep a roof over your head. This is where one needs to be careful – there are a lot of seemingly easy, high-interest options out there. The easier the solution sounds, the worse it will probably be in the long run.
While borrowing from family or friends can be embarrassing and put relationships at risk, that might be your best source for financial help. Just be sure to put everything in writing to keep everything crystal clear to all parties.
If you are participating in your company’s 401(k) plan, you can possibly borrow from that. This could be a good option as any interest charged on your loan goes back into your account, reducing actual costs. But your paycheck will automatically be reduced by the repayment schedule and be aware that you’ll also pay all taxes and a 10 percent early withdrawal penalty if that money is not restored within the guidelines.
After this, your money options get more costly and have a larger impact on your credit rating. A home equity loan or secured personal loan could be a possibility. Margin loans on your portfolio are an option, but they too have risks and can be expensive. Try to avoid cash advances on your credit card at all costs.
However, before you go into debt, look hard at your expenses. Anything you don’t spend makes that emergency fund last longer.
Dana’s Take When faced with a money meltdown, before borrowing think back to the Great Depression and how grandmother and grandfather got by.
Sharing a home or taking in renters was one solution. If you’re renting, consider moving in with a senior adult and helping with driving, cooking or companionship in exchange for housing. Working as a live-in nanny is another option. Get creative.
To earn extra money, women cooked pies or took in laundry and men did handy work. Can you or someone in your family tutor or provide pet walking, lawn care, babysitting, or grocery shopping services?
Who knows, you may even discover a whole new career path that is fulfilling as well as lucrative.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at firstname.lastname@example.org.