Whether your goal is to save money, eliminate debt, or a combination of both, a solid financial plan is important for your future. But what do you do when your plans go awry? A job loss, divorce, illness, unexpected emergency, or any number of situations can throw a wrench in even the best-laid plans. This is disheartening, and it can make it very difficult to save money, pay down debt, or in some cases, even cover the regular monthly bills.
Luckily, an unexpected situation doesn’t have to mean disaster for your finances. There are plenty of options that can keep you on the right track even when the unexpected occurs:
Start Living on a Budget
If you are suddenly faced with a loss of income or other catastrophes, it’s more important than ever to put each and every dollar you have to good use. A budget can help you track your expenses and ensure you’re not spending money on non-essentials.
It is a fact, that when many of us suffer a reduction in our income, we convince ourselves — “this won’t last long”, I’ll be back on my feet in no time”, “I can’t let my family/neighbours/friends find out”, even “this can’t actually be happening”. That’s simply human nature, but it causes us to make a serious mistake in the face of a financial setback. We fail to reduce our standard of living. That is, we continue to spend money on those little extras, on eating out or buying gifts we can’t really afford anymore. Sitting down and doing a budget based on the new reality, and working to live within that budget is the first and most important step in overcoming a financial setback.
Look for Alternative Sources of Income
When money is hard to come by, every little bit helps. Look for ways you can make a little extra money to help cover expenses or save money. For example, working part-time, doing odd jobs, or selling items around the house can help you stay afloat in the short term during financial difficulty.
If your situation means you cannot work at the moment, then check with various social service agencies to see if you can get temporary help to keep afloat. You’ve likely worked hard your whole life and the thought of asking for financial support from the government is completely foreign to you. But that is exactly what these social programs were designed to be — temporary help when you need it most.
File for EI if You’ve Lost Your Job
If you’re eligible for Employment Insurance, make sure you file for it as soon as possible. Waiting too long can disqualify you from receiving benefits. Even if you have a savings account to fall back on, the incoming cash you receive from your benefits can help hold you over until you find your next job.
Contact Your Creditors
If you’re on a repayment plan for any of your debts, contact your creditors and find out what relief they can make available to you. You may be eligible for hardship deferments or income-based repayments. This will keep you in good standing with your creditors even when you find it difficult to pay down your debts. Sometimes people discover that they have been paying for insurance on certain debts — often mortgages, lines of credit, car loans, but not limited to these. Check your statements, and if necessary, call the financial institution to find out if you have insurance to cover a period of disability or unemployment.
If you cannot continue any payments on debts, this would be a good time to contact a Licensed Insolvency Trustee (LIT) for pointers on how to deal with your creditors. An LIT will be able to give you advice on how to effectively communicate with your creditors so that you can reduce collection practices as well as your stress over the unpaid bills.
Focus on Minimum Payments
Anyone trying to pay down debt knows that minimum payments will keep you in debt as long as possible. However, when you still have income, but it has been reduced, or when a sudden expense comes up, the money you usually use to pay down debt will need to be used elsewhere. Until you are back on the solid financial ground, focus on making the minimum payments required. This will help keep your credit intact.
Avoid Incurring More Debt
If you’ve focused solely on paying down debt, you may not have an emergency fund to fall back on. When this is the case, avoid incurring more debt through credit cards or personal loans whenever possible during an emergency. Excessive credit card use or reliance on debt can create even more problems down the road.
Life rarely goes as expected, but that doesn’t mean your financial plans have to suffer in the long term. A plan of action for unexpected situations can help you stay on the path to reaching your goals.
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