How to Cope with a Cash Crisis

If you are hit with a serious money crisis and you find yourself scrambling
around for emergency money, here’s how to assess your situation and get back
on your feet.

All of a sudden and without warning, your roof begins to leak! Your hot water
heater shuts down and your computer goes up in smoke, the clutch needs to be
replaced in your car and your son decides to have his wedding on the Isle of
Oahu – all of this within the same week!

As you sit, stunned and you ponder an exit strategy you receive a friendly letter
from the IRS explaining that you miscalculated your taxes in 1996, and they
now own your house.

This Kind of Money Emergency Requires your Immediate Attention

What do you do?

The above scenario looks like a money emergency of biblical proportions. You
are afraid to open your front door for fear of finding a swarm of locusts!
Thank goodness, there are things you can still do to restore your financial life
and equilibrium—and perhaps even fend off future misfortune—without having
to sell your very soul.

Learning to Cope with a Money Emergency

Wherever there are money woes, you can be sure to find crippling emotional
setback. Avoid it all you try, you might just as well begin to prepare for the
devastating fiscal and the emotional fallout that is sure to come. You will need
to cope very well with both if you hope to make a solid financial comeback.

Whenever a money emergency hits, it will be your ability to deal with the
individual pitfalls that will hold you in good stead. It is when a series of financial
hits come your way that the stress will tend to accumulate and make your life
much more difficult to cope.

You will not be so overwhelmed when you can calmly and rationally look at each
individual problem as it arises. If you sit back wringing your hands with worry
and allow all of your emergencies to pile into one; you will find yourself down
for the count.

Calm must take center stage. You must NEVER allow yourself the luxury of
panic. There is no one there for you to just take over. You are all you have.
The more you panic, the less effective you will be. You need to keep a very clear
head to be able to sit down and come up with an appropriate plan. Be aware of
your own tendency to sabotage your plans further. It is only when you are at
your most calm that you will be prepared to get to where you need to be and
then overcome.

Being Calm is the First Key to Managing a Money Emergency

At even the first hint of a money emergency, it’s important not to act right away.
If you do you will inevitably make a mistake! First, before you can manage your
finances again, you have to first manage your emotions. You absolutely must
regain your balance before you can even begin to make a plan.

If your money emergency demands that you act quickly, think first about seeking the advice of a debt counselor, money coach or financial planner.

Remember the old adage that “two heads are always better than just one!” You
won’t need to make a major cash investment if you’re strapped. Look for a
planner who will give you a one-hour consultation for $50. Often times this will
be all you will need to securely turn the corner.

Time to Crunch some Numbers

The first step toward establishing financial stability is to step back, take a deep
breath and assess the damage. Possibly one of the bigger mistakes people
make when they’re in a financial crisis is not being prepared to make a clear
assessment of where they’re at.

You can easily become overwhelmed. However, totaling up the damage serves
two important purposes. First, you need to know exactly how much you owe,
how much money you have in hand and what it will take to cover the distance
between the two. Second, you will want to avoid any other mishaps, such as
penalties, further repairs, missed deadlines, etc.

At about this time many people make the mistake of turning to plastic for relief.
Resist this one. You will only be transferring your problems from one pocket to
the other.

On the other hand, if you are sure you can handle using credit cards to deal with
a cash emergency, you had better be sure you could pay them off when the
time comes. Otherwise, why add yet another debt and another problem.

Eventually, it will all catch up with you.

If you’re truly running while on your last leg, consider taking out a home equity
line of credit. This will work for some. The interest is tax deductible, but those
aren’t fixed rates. Be smart about this remedy, though. Unless you plan to pay
back the amount you borrowed promptly, it can end up costing you more than
you thought—especially if you’ve already depleted your own equity.

The Idea is to Make a Smart Decision and not a Rash one

Think well before borrowing from your 401(k) or IRA. There are loopholes that
allow you to do so, but there are also hidden costs—never mind potential taxes,
penalties and other consequences. Keep in mind that if you were to lose your
job, you’d have to repay the loan immediately, or be taxed as though it was a
withdrawal. This remedy could be very costly in the long run.

Increase your Cash Flow without Going Further into Debt

Take on a hobby that you can translate into dollars. Can you walk a
neighborhood dog? Teach basket weaving? Host a dining room? Baby-sit for
your sister’s kids? Do Computer graphics? Consider which of your talents might
be worth a few extra bucks and then go out there and do it.
Take on a part-time job. The holidays are soon coming up, and many
people supplement their salaries with part-time retail jobs. Just don’t spend it
all on holiday gifts and be sure to bank it into your savings.

Spend more wisely. We all have our own ways of wasting money. Now
see how you can eliminate the ones that you wouldn’t miss. Just saving the
dollar you would normally spend on that cup of coffee each day adds up.
Borrow from a trusted friend or relative. The interest rate is low to nil,
the cash is quick—but guilt is even higher. Be sure you have a plan for how
you’re going to pay back the loan even before you approach them.