One of the fundamentals tenets of financial planning is you
0 Comments | Daily Review, The; Towanda, Pa., Jun 8, 2009 | by PAMELA YIP
One of the fundamentals tenets of financial planning is you should build up enough of a cushion to withstand an unexpected financial emergency.
But when you’re already struggling to make ends meet, having another unexpected financial SOS pop up is the last thing you need.
The car breaks down and needs $1,000 of repair work. The roof starts leaking. Junior falls and breaks an arm. Etc., etc. Just the thought of it can throw any financially distressed person into a frenzy. But before you panic, understand that you do have options.
“Try to remain as focused a possible on the solution rather than the problem,” said Maureen Johns, director of brand innovation at City Credit Union in Dallas.
“Sit down and organize and figure out what needs to be paid immediately and what can wait,” said Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas.
There are expenses that you must continue to pay: your mortgage or rent; utilities; car payment, because you need a mode of transportation to get to work or look for a job; and health insurance, homeowners insurance and car insurance. Lay out your expenses so you know where your money’s going and “immediately cut out luxuries,” said Marian Ross, county extension agent in family and consumer sciences at Texas AgriLife Extension in Fort Worth.
Analyze all your resources
“What are the things that will help you bridge the gap?” Mr. Mark said. “If there are no emergency savings, you need to take stock of assets, liabilities, income expenses. Is there equity in a home that you need to tap? Are there retirement funds that you may need to get you through your financial crisis?”
Mr. Mark and Ms. Johns advise against tapping retirement funds unless you absolutely have to.
As the Profit Sharing/401k Council of America explains it: “When you take a loan from your plan, you are withdrawing money from your account balance and replacing it with an IOU. That IOU continues to generate interest from your repayments, but generates no special investment return.”
The importance of keeping your retirement funds intact is illustrated by Cynthia Johnston.
Ms. Johnston, 64, who lives near Dallas, slipped on her driveway during an ice storm and broke her femur. Doctors had to insert a titanium rod to facilitate healing.
Though she wasn’t struggling financially, Ms
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