Coping with financial tragedy
As you strive to achieve financial goals, it's
common to overlook the potential for major financial setbacks -- even
though they can strike without warning and often can't be prevented
But you can take certain steps to minimize their impact.
These plan-wreckers come in many forms such as disability,
job loss, business failure, divorce, and death of a spouse.
Would you have enough income or resources to survive
a financial setback? Is there money available and resources in place
if something were to happen tomorrow? It's important to be prepared,
rather than trying to pick up the pieces after the damage is done.
Picking up the pieces is exactly what Joan Price had
to do. In 1995 the freelance health writer, speaker, and fitness
professional was in an auto accident that caused extensive injuries
to her legs, forcing her to stop working for six months. While her
own unpaid bills mounted, she was required to pay large medical
bills for the other party before the insurance company would settle
her case and reimburse her. Price was financially devastated.
"I didn't have a financial cushion," says
Price, author of "The
Anytime, Anywhere Exercise Book."
"I borrowed thousands of dollars from friends
who, fortunately, were able and willing to lend it to me. I got
in debt for the first time in my life and hated it."
Let emotions subside
If you find yourself facing financial turmoil like Price, your first
reaction likely will be emotional. You'll worry that money will
run out, or you won't find another job or land on your feet from
a divorce. Worry is normal, but if you find yourself in a crisis,
financial experts urge you not to make quick decisions.
"Do not take any action right away," says
Sheryl Garrett, founder of Garrett
Planning Network in Kansas and the author of "Just
Give Me the Answers," a consumer financial book. "There
is so much emotion involved in any traumatic event. Calm down, step
back and take a good financial assessment of your situation. Take
inventory to see what financial professionals you may need to get
involved." For example, if your spouse died, you may need to
contact an estate attorney or, if you are divorcing, an attorney
with divorce experience.
Check existing resources
Perhaps your situation isn't as bad as you think. A savings account
may help to pay bills. A marketable skill may help to get another
full- or part-time job. An insurance policy might cover you after
an accident and help you get on your feet. You won't know until
you analyze your financial statements.
Ask yourself: Have I set aside enough funds
in a checking or savings account to cover at least six months of
bills and daily living expenses in case of an emergency? Can I convert
my accounts to accessible money without being subjected to stiff
financial penalties? Can I surrender an insurance policy or liquidate
Also, ask yourself if all of your money is tied up
in investments or accounts with a distant maturity date. You may
have savings or investments, but if they are not liquid, they may
not help you immediately.
However fuzzy this financial snapshot may be, it's
First things first
Now that you know how much money is available, maximize its use.
Before you pay bills, set priorities. For example, you might want
to use savings and other assets to help pare down debts, but without
any income, your savings may need to cover daily living expenses.
"The most important thing to be concerned about
is paying the bills in the short run," says Russell Wild of
Global Portfolios, a fee-only financial planning and investment
firm in Allentown, Pa. "If you have a nonretirement and a retirement
account, rely on the assets in the nonretirement account first and
hold off cashing out on retirement plans as a last resort to prevent
penalties and other fees."