8 Tips to Overcome a Household Financial Crisis

April 23, 2018

Do you pay attention to your health?  Sure, you may eat right, exercise daily, and try coping mechanisms to reduce stress.  But, did you know money is one of the top stressors in American households?

 

How is that possible for a country that is so wealthy?  According to the American Psychological Association, "Nearly three-quarters (72 percent) of adults report feeling stressed about money at least some of the time, and nearly one-quarter say that they experience stress about money."  Therefore, three-fourths of this country stress about money.

 

How often are you worrying about money?  In an article by WholeFamilyLiving.com, "...it's not the balance that matters. It's the habits."  Do you have bad habits with your money?

 

For example, one habit that I plan in my budget is my daily coffee stop routine.  When was the last time you took a deep dive into your budget and highlighted the discretionary expenses (non-recurring items that can be reduced, such as dining out, entertainment, etc.)?

 

Life will throw you obstacles and challenges that are likely to have financial consequences, no matter how much you plan.  It's just the reality.  When those events occur, do you have a financial plan in place?

 

Below, you will explore eight tips to help guide and educate your household, so you have the financial knowledge ready to encounter any financial disaster.

 

 

The 8 Steps Are:

 

1. Recognize the Mistakes & Other Potential Challenges 

 

Have you lost money in the stock market or maxed out your credit card in the past?  Such mistakes have consequences from loss of principal to lower credit scores and penalty fees.  But are you still making the same mistakes?

 

It can be difficult to accept defeat and sometimes such events causes harm to your household.  According to Psychology Today, "It's not about the reluctance to accept loss so much as the difficulty of acknowledging the mistake. 

 

A major function of the unconscious is to protect us from information damaging to self-esteem, and few things can be more humiliating than being suckered into losing your money, especially in a get-rich-quick scheme that defies common sense."

 

Take a moment and reflect on the mistakes made, but use it as a chance to motivate your mindset to never make those mistakes again. 

 

When I was in my early 20’s I got into serious credit card debt.  This challenge proved to be too great at the time for someone making less than $30K/year.  However, I wouldn’t accept defeat or think about bankruptcy, so I treated the symptom and got another job.  In fact, I got three part-time jobs.  I was working whatever odds and ends to make money at every possible hour in the day.  I sacrificed my evenings, weekends, friends, and family time just to stay afloat and to put food in my stomach.  !  But I learned a very valuable lesson.  It's a lesson I plan to never relive. 

 

 

2. Create a S.M.A.R.T. Plan

 

Now that you have recognized the mistakes, it is time create a plan, a SMART plan.  By creating a plan, you are establishing a roadmap to guide you out of the abyss.  Perhaps, the plan is to rebuild your emergency plan or pay off your debt.  Whichever it may be, you must create a plan and it needs to include these attributes:

 

Specific (Ensure the goal is clear and specific.  Determine what it is you hope to accomplish, why it's important, who needs to be involved, and what resources are required).

 

Measurable (How can you measure your progression?  Track your debt balances.  Are you making progress?)

 

Achievable (Is the timeline realistic? You can't payoff $10K in debt in one month if you make $5K in a month.)

 

Relevant (Do you really need to payoff your mortgage if you are struggling to payoff your credit card debt or other loans?  Determine the priority of each and make sure your goal is relevant to the end result.)

 

Time (Establish a realistic timeline; Can you achieve your goal in six months or in a year?)

 

 

3. Determine What You Hope to Accomplish

 

Set a target of what you want to accomplish and determine the value behind.  Why do you hope to pay off that credit card?  It may be that it will free up additional income allowing you to take a weekend trip. 

 

Maybe having an emergency fund available will ensure you don't have to reach for the credit card when disasters strike.  What is the value behind every goal you are setting?

 

According to theBalanceCareers.com, "You are less likely to experience conflicting priorities if the important aspects of your life have a value-based goal. Some areas to consider having goals set in might be:

  • Family and home

  • Financial and career

  • Spiritual and ethical

  • Physical and health

  • Social and cultural

  • Mental and educational

 

4. Establish a Backup Plan

 

"The art of crafting a 'plan B' required developing a contingency plan in case the ideal plan of attack did not work out." claims Virgin.com.   What is your fall back plan should Plan A go erratic? 

 

For example, what if something happened last month where you needed to exhaust your emergency fund?  Do you have a plan to quickly replace it?  Maybe having a garage sell or selling items on eBay can provide additional cash. 

 

Are you taking advantage of online income opportunities?  Remember to stay calm, think thoroughly through your plan and establish a plan B should something in plan A not work. 

 

5. Be Proactive

 

If you can be the one suggesting a solution you will be working with people that will work with you. If you wait until your creditors are demanding payment, you lose options. Cut expenses and pay debts. I love Dave Ramsey's quote "rice and beans tonight and tomorrow it is beans and rice."

                                       

 

6. Prioritize Your Obligations

 

Know which ones are most critical as you come out of this crisis. It will be short term, but you also have to live. Things like mortgage, car payments, utilities and groceries take are more important than credit cards. Look for ways to cut expenses without long-term contracts such as Cable TV and cell phones. Change your spending habits. As David Bach, author of "The Automatic Millionaire," suggests, "Find your Latte Factor." What he means are those things you buy that are not important to your daily living.

 

My friend, Mindy, at TheFrugalMama.org discusses how she and her husband paid off $21,000 of debt in 3 months.  They did this AWESOME accomplishment by tracking their spending and having a plan. Read more.

 

 

7. Monitor Your Credit Report

 

As a strategy to monitor your progress, reviewing your credit report on a regular basis can be a great tool.  While it is considered a lagging indicator, it reflects your financial progression and how future creditors will look at you.

 

It is also a great opportunity to ensure nothing is getting out of control.  For instance, debt balances are decreasing, your score is improving, and your credit utilization is increasing. 

 

Another option is keep a financial diary.  Jot down your daily goals.  You can set a daily goal to save $1 and the following day save $1.50.  Look for opportunities to save. 

 

 

8. Seek Additional Income

 

Cash flow is king to getting past a crisis. Look for income opportunities to increase your finances.  This allows you to tackle debt faster while meeting short-term obligations..  There are numerous videos of How to Earn Passive Income.  Check out the article, 15 Ways to Make Extra Money.

 

                                           

Earning passive income did take me several months to build and construct because I had a huge learning curve.  But once I started earning money, I knew this opportunity was real and I have continued to stay focus on this to allow me to really focus my time with my clients.

 

Treat any crisis as a wake-up call. Understand that the earlier that you catch a crisis, the more options you have to solve it. Build a crisis-proof wealth plan early in your life, and you will weather any storm that appears on the financial horizon. Remember also that more wealth is created during trying times. If you are prepared when the storm hits you can look to gain wealth than just save your credit tail.

 

In the blog article Make the Most of Losses in Life by MoneyWithAPurpose.com, Fred outlines several key points in dealing with financial stress and how to overcome such obstacles.  He too explains the purpose of an emergency fund and how this little money saver can be a life saver. Check out his article. 

 

 

 

 

 

 

 

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