Before you can properly save for retirement, you first have to make sure that your personal finances are properly in order. Depending on what kind of job you have, sometimes there will be times where you simply run across a financial drought. From losing work to losing a second source of income, it is always necessary to have backup funding.
If you don’t have that already, these five suggestions below can help you in a financial drought.
Review Your Budget for the Past Three Months
Many people will say to create a budget for yourself to live by when in a financial drought. This is actually the best advice to do before the drought occurs, though.
At this point, you’ll need to review your budget for the past three to six months. It’s time to find out where your money has gone. This is easy to do if you pay for everything with one credit card or bank account. This is much harder if you spend cash for everything. By taking some time to look at where every dime of your money goes, you can find ways to cut back on the expenses.
Generate Another Source of Income
A financial drought does not always mean you’ve lost income. It could be that you have other additional expenses you can’t keep up with. If that’s the case, generating another source of income could outweigh the debt. Besides the obvious of getting a part-time job, you can generate another source of income via starting your own business, selling unused household items, tutoring someone, cleaning pools, or renting out your garage.
Call in Those Loans from Family and Friends
Now is the time to collect on money you may have lent to family and friends. Hopefully, you have a written agreement. If push comes to shove, you may need to enforce it. However, remember to stand your ground. It is a loan they promised to pay you back on. So if the repayment period has expired, you should be entitled to the entire loan up front. If they are in agreement with you that they should pay this loan, tell them of your financial bind and see if they’d be eligible to take out an installment loan so they can pay you back now. Many don’t run a credit check, and you’ll have the money in no time.
Borrow Against Your Assets
If you have assets such as a 401k, IRA, CD, life insurance, or equity in your home, you could borrow against these assets. You should sit down and speak with your account manager regarding options you would have such as:
- repayment terms
- penalty fees
- where the interest returns to
- withdrawal options if you can’t afford to repay it currently
You don’t have to act immediately, but it’ll be good to know you have the option of borrowing against these assets. Although you’re in a financial drought, it doesn’t necessarily mean you’ll need to take such drastic action to reduce all your asset accounts. You could find that taking a quick installment loan could be an option for you as well to avoid certain penalties.
Dealing with a financial drought can be a painful emotional experience. However, by working together with your immediate family, you can work out a plan to get out of this crisis.
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