Friday, December 2, 2011

Hidden Signs of Financial Collapse - Part Two - The State of Personal Finances

The current personal finances of a lot of people are woefully inadequate should they suffer even a small life-changing event. There are numerous things that can create a crisis for your personal finances. With the proper planning, these events will have less of an impact. The chances of you experiencing one of these common, everyday occurrences is a lot more likely than you may realize.

Unfortunately, the personal finances of many people are almost a “mirror” image of those of our government. Many people also refuse to take the necessary steps to correct the deficiencies and only do so when forced by the circumstances. They don’t want to give up those “little luxuries” that are now viewed as a necessity.They have a tendency to spend more than they make with little regard to the impact this could have on their lives if something goes wrong. People often complain about the economy as a whole but haven’t taken the necessary steps to get their own “economic household” in shape. Unlike the government, they won’t be able to print more money when a financial setback happens.

So what are the most common occurrences that can affect your financial well-being?  While there are numerous small events (broken appliances, leaky water pipes, etc.) that can happen, there are two basic events that can have a severe effect on your finances. One of these basic events is unemployment. The sudden loss of a job due to cutbacks, layoffs or “down-sizing” can be brutal on your personal finances. The other basic event that can have a devastating effect on your finances is a major health problem(s). Either of these events can have a devastating effect if you aren’t prepared.

Roughly 50% (depending upon whose statistics you use) of all Americans live from paycheck to paycheck. This is not a place you want to find yourself. If that paycheck suddenly stops as result of unemployment, you are going to be in a world of hurt if you suddenly find yourself without an income. Even though you may be able to receive some form or type of unemployment assistance, it will normally be less than adequate to maintain your current lifestyle or provide enough financial stability to get you through a crisis of this nature. Those benefits will also cease to exist at some time in the future. When you consider that 1 out of 3 persons will become unemployed at some time in their lives, it’s only a matter of time till you find yourself confronted with this problem.  

A major health crisis can also be equally as devastating. Even with good health insurance, you may still be confronted with staggering medical bills if the worst should happen. If you find yourself unemployed, you may also lose your health insurance or be unable to continue it due to the high cost of premiums. This can make a severe health problem even more cause for alarm where your personal finances are concerned. When you consider that 1 out of every 4 persons will suffer some sort of major health crisis in their lives, this is something that simply can’t be ignored if you want to be properly prepared financially.

So what can be done to limit the effects of these occurrences? One of the most basic things you can do is to establish a personal emergency fund. The establishment of an emergency fund is of the utmost importance. If your source of income suddenly disappears, you will need a replacement source to help cover routine expenses. Even a small emergency fund to cover your basic expenses for several months, will help you to deal with a crisis until other options can be utilized or additional income can be obtained. This will put you ahead of the game when you consider that most people have little or no savings and limited sources of credit available to them if a crisis should occur. If at all possible, an even more substantial emergency fund that can cover your expenses for six months to a year will be even better.

Another thing that can be done is to improve your job skills. Quite often a lack of skills can affect your employability. If there are layoffs or cutbacks, you may need a different type of skill other than the one you are currently using to take advantage of the employment opportunities that may still be available. A part-time job in another field can also allow you to develop additional skills and may even create an additional source of income. This extra income could also be used to build an emergency fund or make your current one even more substantial. Many part-time jobs also pay extremely well, especially those associated with certain trades such as mechanics, carpenters, electricians or plumbers. It may even be possible for you develop skills in several of these areas.

The other area you may need to concentrate on is to improve the status of your health. Get regular checkups and work to improve the overall state of your fitness. Devote some additional time and effort into improving your health. Don’t wait until the ambulance shows up at your house. Even a minor health crisis can have a big effect on the best of plans.

So why are these hidden signs of economic uncertainty? Chances are you won’t see it until it happens. In general, most people don’t even know the name of their neighbor down the street, let alone the state of their neighbor’s personal finances. You usually won’t know they are behind on their car payments or mortgage until a foreclosure sign pops up in the yard or their car disappears out of the driveway. You may have even read about a big layoff from a company where they may have been working without realizing your neighbor just lost their job. You may even be unaware of other family members who are experiencing financial difficulties because they may be too embarrassed to say anything.

There was a time when friends and family were available to help out during a crisis. Unfortunately, this is no longer the case in the majority of situations. As the effects of a bad economy widen, the vast majority of extended family members or friends may be in worse financial shape than you are. They simply may not be able to offer you any assistance because they are dealing with the effects of their own personal financial crisis.

Disclaimer: This is merely an opinion of this writer and should not be considered professional advice of any kind.

Staying above the water line!


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