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Tuesday, December 20, 2016

How To Overcome An Unexpected Financial Crisis

Image courtesy of jesadaphorn at FreeDigitalPhotos.net
A reader, Heather, reached out to me, and mentioned how she had cancer and she went from being financially stable to in a big financial crisis, because of all the expenses involved in the treatments and being unable to work, and more. She asked me if I'd be able to write a post about how people can overcome an unexpected financial crisis, and I said that I'd be happy to.

In my adult life, I certainly did have an unexpected financial crisis, but I can't say that it was following a period of financial comfort.
Rather, about a year after we got married, some financial mistakes of one of our pasts' caught up with us and gave us a huge jolt, causing us to feel like we were drowning financially, instead of the just barely making it through the month that we'd been doing until that point.

This post will hopefully address people in both circumstances- people who started off financially comfortable and then found themselves in financial hell, as well as people who weren't doing well beforehand and then found themselves in an even worse situation.

Steps to Overcome An Unexpected Financial Crisis

Deal With Immediate Issues First
As much as you want to fix financial issues during the middle of whatever crisis you're facing, you may have to face the inevitable that you need to focus on the most pressing issues then and there, and only after that try to fix the financial repercussions.
That said, if there are ways to lower your expenses even while going through the crisis (hospitalizations or whatever), so you have less damage to fix after the fact, it is best to do that.
When Loans Are Needed
If you need to eat up your savings if you have any, it's probably best to do that, leaving behind a small emergency fund if possible, instead of taking out loans which typically have higher interest rates. If you need to take loans to cover your immediate expenses, try to find places with the lowest interest. If you have freinds or family willing to loan you interest free, it may compromise your relationship with them in the long run (because money complicates things) but it can make a huge difference if you don't need to pay interest on top of everything else you need to pay back. When that is not an option, shop around for which loans offer both the best interest rate and the most manageable monthly payments, so you don't end up collapsing under the monthly payments once your crisis is over. Remember that those that are usually most eager to give you loans (payday loan places and credit card companies) often have the worst rates and will end up costing you the most in the long run.
Accept Help
As uncomfortable as it may make people to accept help and charity, whether from individuals, churches or other religious groups, or organizations, remember that these people are offering you help for a reason. No one should want to be accepting charity or help as a long term thing, but there is no shame in accepting help when offered in the interim. If people are offering to make your family meals, it will lower your grocery bills and/or reduce the need for takeout. If they are offering help with your kids, again, take it- it lowers child care costs. Any help that you are offered, accept it, and hopefully when this crisis is over, you'll be able to pay it forward.
And don't be afraid to ask for help. Even if help isn't offered, reach out and ask people if they can help you or if they know of organizations that do. Oftentimes people want to help, but they just don't know how, so if you give them concrete suggestions of things they can do, many times they would be willing to pitch in.

Dealing With The Aftermath Of The Crisis
Take a Deep Breath
When the immediate situation is over, and you're ready to resume normal life, only now there is the big financial crisis that is looming overhead because of your difficult situation, the first thing to remember is to take a deep breath and try to relax. Panicking won't help anything, and may just exacerbate the problem. When you are able to tackle the difficult situation from a calm perspective, hopefully you can figure out how to move forward.
Take Stock of Your Financial Situation
Although it may seem scary and overwhelming, and you may want to do anything but look at and acknowledge the numbers, in order to effectively deal with a financial crisis, you need to know concrete numbers. Find out how much money you are bringing in each month, if anything. See how much you have left in savings, if anything. Do you have any assets, such as homes or vehicles you own? Calculate the sum total of all your debt, and find out the percentage of interest on each loan, as well as the exact amount of the monthly payments for each.
Start a Basic Budget
Do the math and see how much money you have left each month just once you subtract the monthly loan payments from your monthly income. If the loan payments are more than you are bringing in each month, do what you can to increase what you are making each month. (More on that in a bit.) If they are not, with the remainder, subtract all your steady monthly expenses, including rent or mortgage, insurance, etc... and see what is left for the payments that change from month to month.
If you have nothing left to pay for the variable payments after subtracting loan payments and steady payments such as rent, whether groceries or clothing or otherwise, you'll need to figure out a way to increase your income or lower your steady monthly payments, whether that means downsizing and moving to a much smaller and cheaper home, getting rid of one or more of your vehicles (assuming you don't need those for your job) or trading it in for something cheaper, or shopping around for other insurance rates.
When we were in financial crisis mode, we moved from a 960 square foot home to a 484 square foot one, with our then family of four (which increased to a family of six, by the time we moved out last month) to save $200 dollars or so a month, which may seem like a pittance but it made a huge difference in being able to pay our bills or not each month.
When you have enough left over after the non negotiable and steady bills to pay for the variable expense bills, such as groceries, clothes, etc... figure out a budget for each of those (using only what is left over after paying the other bills, not budgeting money you don't have).

Unexpected Financial Crises Means Needing To Adjust Expectations
Probably the hardest part of a financial crisis and needing to overcome it is not the actual physical aspects of it, or even the monetary stress, but rather needing to change one's lifestyle to one that is more suitable to their new financial situation, even if it is very foreign from the previous one. This takes a lot of self work and won't happen overnight, but is very important to do if you want to be able to move forward.
Praying helps, meditating, talking with friends or therapists about it, but eventually needing to accept that things will have to change, and they will probably be uncomfortable until you get used to your new reality. Joining support groups really help- there are many frugal living and extreme frugal living support groups, mainly online (which helps especially if you can't find people local), some general frugal living, some more region specific, some catered to frugal shopping and cooking, others to DIY type projects, and others to debt repayment programs such as Dave Ramsey.
By joining these support groups, the knowledge that others are going through similar or have been through similar, and can understand what you're going through can make a world of a difference and make it much easier to come to terms with your new reality.

Making Money, Even in Less Ideal Ways
Many people, when they are in financial crisis mode, especially if they are currently without a job, try to look for the perfect job, or at least a very good one, not being willing to take a job that is different or "less prestigious" than the type of job they would like to have.
I know far too many people that bring in no income, and when I suggested a minimum wage job to bring in some cash (such as working at a local supermarket) I was told "That won't cover my bills, and its not the type of place I want to work." But even if a minimum wage job won't cover the bills, its still providing a set amount of income per month, vs not working. This person I know who refused to consider a minimum wage job instead has worked at no job for the past 5 years. And they don't even have unemployment payments or state aid or anything like that that they'd be giving up by working at a less than ideal job. So each month, they are just getting into that much more debt, because instead of bringing in little, they'd rather bring in nothing.
It may not feel so nice, may feel a little degrading to do the type of job that seems "beneath you", but as someone whose husband worked a minimum wage job for many years and now makes only a little bit above minimum wage, I'd much rather have money coming in from a less prestigious job, and making it work for us financially, than look for the perfect job that will get you admiration, and in the meantime not have money to live off of.
If you already have a job, but it isn't enough to cover expenses, and switching to a better paying job isn't possible, see if there are other ways to earn money in addition to your current job, whether it is taking on more hours, or doing what people following Dave Ramsey call "gazelle gigs", little things to bring in extra cash (and run as fast as a gazelle to eliminate debt)- selling baked goods from home, working on sewing projects, babysitting, cleaning, tutoring. Think of what skills you have that are marketable, and try to fit in some of those jobs on top of what you already are doing if possible.
The types of "gazelle gigs" I did when I was desperate were cleaning jobs and babysitting, as well as telephone marketing. They weren't jobs I loved by a long stretch, but they helped us get back on our feet until something better came along. Some people join Fiverr.com or UpWork as service providers, others join Uber as drivers. There are Facebook groups with suggestions for "Gazelle Gig" ideas. In short, you can try to be frugal, but sometimes that isn't enough- you may need to focus on making more money to cover those basic expenses, and you may need to put aside your aspirations for an ideal job and for now, just look to do anything to make money, so that you can pay your bills.
Note that there are all sorts of different and potentially extreme ways to make money, even some you might not have considered. (Someone I know got paid handsomely to be a surrogate to twins for an infertile couple.) And while you're doing that, keep an ear out for more ideal jobs to switch to when possible. But don't put off making money because it isn't in the field you were hoping for, or the terms you wanted. When times are desperate, compromises may be needed.

Cut Your Expenses
If you expect to live the same type of lifestyle mid and post financial crisis as you led before, you won't be able to get ahead. A big factor that plays a huge role is cutting your expenses. We've already talked about cutting down big expenses, like housing and insurance and transportation, but once you've done that, and you figure out how much money you have left each month after your non negotiable expenses, you may find you have a lot less money available to spend on other things that are also necessary, such as groceries, household products, clothing, school supplies, entertainment/enjoyment, and more. But unless you want to increase your financial issues, you can't be spending more than you have left to budget. To do this, I found it super helpful to ask myself "Is this really a need, or is it just a want? Can I do without this for now, or is it a true need?" Sometimes it made sense to spend on wants, not needs, because little luxuries allow you to have the peace of mind to be more extremely frugal in other ways, but going in with the knowledge that those were

You'll need to be creative to figure out how to lower your variable rate bills. When you need new clothing, can you buy it from thrift stores or garage sales? Get hand me downs? Get clothing from swaps? For household products, can you coupon and shop sales and do mail in rebates to get these for very cheap or even free, or can you make your own from cheap ingredients? Can you switch to reusable household and personal items (rags instead of paper towels, reusable feminine products such as menstrual pads and menstrual cups, cloth diapering instead of disposable)? When you need furniture or other household items, can you dumpster dive them? Buy them from thrift stores or garage sales or craigslist, or build them yourself from scavenged material (such as wooden pallets)? Can you figure out free or very low cost entertainment for yourself and your family? Perhaps in nature, crafting with free or cheap materials, or events put on by the municipality?
When you need something, see if you can barter with someone for it instead of paying cash.

Lowering Your Grocery Bills
When I was in financial crisis mode, and even now, I actually put my biggest effort in lowering my grocery bills, more than any other bills, because I feel that there is much more wiggle room there than anything else. Additionally, since groceries are an ongoing expense without too much effort you can make an enormous difference in your overall budget, and conversely, with a few mistakes you can overspend tremendously.
However, the other thing I like about trying to work on a budget for groceries is that it isn't a huge decision that you make one time and are stuck with for a while, the same way moving to a different home may be, or buying or getting rid of a car, or changing your insurance policy. Every month you have a chance to start afresh, and make that month's grocery bills lower, and even from shop to shop you can decide to either make a good financial decision or not. On months where you have more expenses, you may need to tighten your belts more, and figure out new ways to save money on groceries, but there be months where you have fewer expenses and have a little more wiggle room financially, so you can decide how much money you want to spend on groceries, and maybe leave yourselves more breathing room and not be as frugal on groceries that month.

I've written extensively about how to lower your grocery bills here on Penniless Parenting, but here are some tips that hopefully will be extra helpful during financial crisis times.

  • Changing your expectations about needs and wants plays a big part in groceries.
    • Meat, and animal products in general, are very enjoyable and satisfying, and if someone needs to be on specific diets for their health, animal protein may be a need, but in most cases, you can satisfy a body's protein needs with legumes and other vegan proteins instead of animal proteins. Lentils and beans and peanut butter are good, cheap sources of protein that cost very little. Buy dry and cook them up for delicious meals that cost little (canned beans cost more).
      Depending on how dire your financial straits are, you may chose to stick to one animal protein free meal per week (saving a little bit of money), one animal protein free day per week (all three meals), only having one animal protein meal each day and having the other meals animal protein free, to alternate days of the week, with animal protein one day and the next without, or serving animal proteins one day per week, or per month, etc. The more you need to cut back financially, the more I'd recommend replacing animal proteins with legumes.
      Alternatively, or in addition to making animal protein free meals, even when serving meat you can stretch it with plant protein sources, such as mixing cooked lentils or TVP or ground seitan with ground meat in recipes, or making stews with both lentils/beans and meat.
      Lastly, you can choose the cheaper animal proteins- eggs in many places are cheaper than poultry or meat, chicken may be cheaper than fish, chicken wings and frames may be cheaper than breast or thighs, ground poultry may be cheaper than ground meat, etc... If you have kids who can be pickier eaters, here are some tips I've discovered to get picky eaters to eat legumes.
    • Store bought treats, snacks, baked goods and condiments are wants, not needs. You can often make these at home very frugally without too much effort, so you aren't going without entirely, just without the expensive version.
    • Name brand items typically are wants. Switching to generic brands or price comparing to see what is on sale where and is cheapest per pound will save a lot of money.
    • Buying specific fruit and vegetables for specific recipes- a want, not a need. Sticking to seasonal produce and buying only what is cheaper, and then figuring out recipes based on that will impact your grocery bills tremendously. 
  • Adjust where you shop. Convenience is nice, but often convenient places cost much more for groceries (unless you're really lucky). Price compare and buy what is cheaper at each place that it is cheapest, ideally waiting for sales to stock up. This doesn't mean you need to shop in multiple stores each week- you can make a rotation so that each week you visit only one or two stores, so that each month you end up going to each one and stocking up on what is cheap there.
  • Be willing to compromise your standards on perfect looking foods. Banged up cans and dry good can often be bought at much cheaper places such as scratch and dent stores (and yes, it is perfectly safe), and imperfect looking produce can be bought from reduced racks and in some places even received at no cost. By buying imperfect looking foods, I often end up being able to get produce for 1/4 or less than the standard pricing.
  • Free food is great. Sometimes there are people giving away food they no longer need on local listservs, foraging for wild edibles can save a lot on produce, hunting and fishing can save money (or even picking up free game from hunters). Some states have waiting lists where if there is an animal hit by a car and died, you will be called to come pick it up (and process it yourself) and thereby getting free meat. Some places you can safely even "dumpster dive" for food- I call it rescuing it from the trash, and aim to get it before it ends up in the dumpster so not gross or unsanitary. And if you are eligible to go to a food bank, and you're in a time of financial crisis, do so. Later, when you get out of the crisis you can repay them by donating things yourself.
  • Stockpile. Buy things that you know you will be using when it is on sale, and stock up on it so that when you do need the item you can shop in your pantry instead of paying retail at the grocery store. Buying bulk of staples from bulk stores (and I don't mean just Sam's Club or similar) can be much cheaper. Stocking up when you have very little money is hard, so follow these tips on how to bulk buy with no extra money
  • Cook yourself instead of buying takeout or ready made. Preparing meals and snacks in advance and sticking them in the freezer for a later date works as an alternative to buying ready made items from the freezer section, Using a crock pot to make meals that cook all day to be ready to eat when you get home is an easy option that is cheaper than buying takeout on long or otherwise difficult days. 
The biggest thing really is when you're in crisis mode, you may need to do some money saving things that seem extreme to others. Remember you owe nobody any explanations about your financial situation and decisions other than yourselves, and you need to do what you need to do to first make it through the month and then get out of your situation. Hold your head high and be proud of your dedication to figuring things out and to try to improve things, and as Dave Ramsey says "Live like no one else (frugally), so that one day, you can live like no one else (with financial comfort)." And my favorite line? Forget keeping up with the Joneses, since the Joneses aren't paying your bills, you are.


Paying Off Debt
Once you've made a budget and cut down expenses, see if you can either make more money each month or cut back expenses even more so that you can pay off each loan, starting with the littlest one first, so that you can free up the payments on that loan to pay off the bigger ones each month, what Dave Ramsey calls the snowball effect, where the loan repayment builds up momentum like a snowball rolling down a hill, gathering speed and mass on the way down.

Lastly, remember that as difficult as a financial crisis is, hopefully, with enough effort and dedication, it will end. It won't necessarily happen immediately, but know that these changes that you're making in your life, even if they are hard, can be temporary, and once you get out of crisis mode, you'll be able to live a little more comfortably, but hopefully keeping up with some of those frugal strategies that have since become second nature.
This too shall pass. You can do it!

Have you ever been in an unexpected financial crisis? Did you manage to get out of it? What did you do to get out of it, and what would you recommend to others in the middle of a financial crisis?

10 comments:

  1. These are excellent suggestions!

    I don't know where Heather is in her illness experience, but if she is in the "easily overwhelmed" stage, then appointing a trusted family member or trusted friend to help manage will make a world of difference. Let them coordinate the meals and things. Let them figure out the financial stuff. The site Caringbridge is good too. The ill person can concentrate on getting better.

    If Heather is in the US, here are a few other ideas (and if she's not, feel free to ignore):

    Cooperative Extensions have free financial counseling in rural areas. I'm sure there is something similar in cities and suburbs.

    Many hospitals or practices have patient advocates who can help.

    Don't get overcharged or unfairly charged (have that friend or relative look the bills over.) Even if you have insurance -- or especially if you have insurance -- hospitals and doctors make billing errors, insurance will refuse to pay, it reverts to the patient, and often the patient ends up paying for it without question. (Sadly, that's personal experience talking.)

    Babysitting is priceless. (Okay, that's not US-specific.)

    A friend used GoFundMe and was happy, although I heard that it pays directly into a checking account, so if you're overdrawn...

    A friend had cancer and -- this being before Obamacare -- had no insurance, so others did a fund drive for her.

    Yes, this all involves swallowing pride and allowing others to help. It's hard. But maybe if one thinks of it as a chance for others to do some good?

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  2. This was a very good, well thought out post. You ought to submit it to Dollar Stretcher, it would help a lot of people.

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  3. We had too much debt and my husband had to go out of work due to an injury. Suddenly we had to live on my wages and hope workers comp or disability would kick in at some point.
    We cut eating out, we built our pantry, we grew tomatoes, we stopped using air con or heat (we live in a fairly mild climate), we cut back on watering, stopped the pool guy, cut back on sodas and store bought treats, starting purchasing real food only, we purchased items by committee, i.e. we both had to agree it was a need, we mended, we shopped thrift stores and second hand sources, we bought fruit off clearance racks, we bought a freezer to store the bargains in...

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  4. I was at the grocery today, and I passed by a package of my FAVORITE crackers. My dad used to mail them to me when I was at college! I put back one can of tuna and put the crackers in my basket. When I got home, I wrapped the crackers in Christmas paper and ribbon so that I can open the box on Christmas morning to remember him --- yes, not as nutritious, but ultimately more satisfying!

    I guess my point is that I'm willing to be very frugal with most things.... I don't have much, but I have no credit card debt, and I think it will make me happy to open a package of favorite crackers on Christmas morning and remember my Dad!

    OK, now your haters can criticize me instead of you!

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    Replies
    1. What a beautiful idea! And definitely worth one less can of tuna...

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    2. I agree. A lovely idea. What I appreciate about Penny's blog is that she strongly advocates spending intentionally, not cheaply. Sometimes care of the soul is a very, very wise investment!!!

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  5. I would add "Be very firm that other people are not allowed to add unexpected expenses". By which I mean - no-one trying to tell you to spend out money you haven't agreed to pay out/not acquiring any extra "mouths to feed" (not even any planned children - unless/until the crisis is firmly over). No-one persuading you into expenditure you hadn't planned on. That's what I've done personally, ie generally taking a stance of "No-one gets my money from me unless they are entitled to it".

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  6. Great writing. I hope this never happens to me and I am finally getting a savings going, it's good to know, should such an event happen, I know where to look for advice. Thanks Penny.

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  7. This is a wonderful post and one I can relate to.

    17 years ago we gave birth to a profoundly disabled child who is also medically fragile. Initially there was concern he would not survive but he is with us to this day. But this meant radically revising our life including financially. In many ways this initiated my interest in intentional living blogs. We are fortunate my husband has a very good job and we had lived frugally before the crisis, but we still had to adjust life, particularly because ours would be a lifelong change. I walked away from employment and we had to rethink how we spent money and what our personal and financial priorities were.

    You offer a great deal of good advice here. I cannot emphasize enough the accepting help even though it is difficult. People are often desperate to help in a meaningful way during a crisis and WANT to be supportive. Let them. We also prioritized my self care during acute hospitalizations with our son - making sure I eat and sleep, and managing my morale, becomes a high priority. That means that I will throw out my frugal mindset and enjoy expensive takeout coffee ( a treat!) and healthy food. Keeping me, the primary caregiver for my son, healthy during the crisis we have agreed is paramount and a financial priority. And I have learned that a decadent Starbucks coffee offers a very brief moment of reprieve when your child is sitting in the ICU. It also helps to keep you awake!!!

    I wish Heather only the best.

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  8. Wow, this is really thorough.
    Accepting you're in trouble financially and seeking help is THE biggest step you can take.
    Additionally companies like www.creditfix.co.uk to help you start making a dent in your debts can be an additional help when re-budgeting your lifestyle.

    ReplyDelete

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