Financial planning is one of the most difficult and yet important things to do in our daily lives. Have you wondered if you can really afford that new car, or if the mortgage on your new house is a little higher than you can comfortably pay?
Money is a delicate matter, no one wants to talk about it openly, yet many people lose their sleep over financial worries. One key advice from financial planners is to always have a contingency plan in hand. Another is to prepare for the worst by giving yourself as much flexibility as you can.
There are many reasons when your finances, which you thought were in order, could completely surprise you. Divorce, Disability, Unemployment or an Illness in the family can all cost huge amounts of money and make your carefully made financial plan go haywire.
What a person chooses to do in a difficult situation ultimately depends on the person’s financial ability and thought process at that particular time. However, in this article we provide you ways to deal with 5 difficult situations you may have to deal with in life.
All marriages start out happily, no one anticipates a divorce in the early days. But along the road, things can go wrong. Being faced with the prospect of a looming divorce can make even the most financially savvy people uncertain about the future.
With children’s education to pay for, debts to settle, retirements to save for, divorce can have disastrous impacts on not just your morale but your financials too. Divorce could be a big setback in financial security as costs of living on your own are often not that lower than living with a spouse, especially if there are children involved.
It is very difficult to plan for a divorce; it is certainly not something you would want to talk about in the happy times. Couples with pre-nuptial agreements usually find it slightly easier to handle the financial aspects of the divorce. However, even with agreements in place it could remain difficult as one person could have managed the finances, while the other just relied on that person.
Keeping a tab on spending habits is one of the main ways to deal with this, paying bills, buying new things, groceries, everything becomes much more expensive on a one-person income. Those who don’t adjust to the change and cut down on unnecessary spending can quickly build up debt. The future you had once envisioned now looks different but don’t give up financially.
Illness – Disability
Disability can arrive unexpectedly, one minute you feel fit and fine, the next minute you have a huge hospital bill to deal with. It need not even have to be you who gets sick, a sick spouse or a child can be equally bad both morale-wise and financially. Many people do not have disability insurance and treatments and medicines can get very expensive.
If your income is hampered because of your inability to work due to the illness, you could go into further debt at a time when you are already paying through your nose for hospital bills. The main way to deal with this type of hurdle is to purchase insurance.
If you are not covered by your workplace, then you should look up a suitable plan and purchase it. The exact amount of the monthly payment would depend on your current salary, coverage you require and the duration of the insurance. Buying disability insurance should be treated as a contingency fund item and you should remember that it will be your boat if the storm hits.
It is easier to start a disability insurance package when you are younger, the older you get the more expensive the options become.
Illness – Mental health
While physical disability can be very difficult, mental disability can be even more difficult to deal with. Mental illness like an addiction or depression can be very difficult to handle, it can make both your work life and family life very difficult.
Severe mental illness even leads to situations where you cannot make decisions on your own. One way to deal with any future mental illness is to prepare a will. Financial decisions are not going to be easy to make when you are already under a lot of stress and dealing with your own or a loved one’s mental illness. Drafting a will to set up property and personal care can be very helping in those difficult times.
If you get laid off because of a bad economy or other factors that you cannot control, then you will have to deal with financial uncertainty till you can find your next source of income. In today’s uncertain economic weather, many people feel insecure about their jobs. This financial hurdle is probably easier to prepare for than the others.
There are many ways to deal with this, including starting a side-business but the most important one is to have an emergency fund that can cover your living expenses till you find your next job.
Financial planners have often said the contingency fund should cover at least three to six months of your income. Your emergency fund should not be terribly easy to access and should be stored in a separate account and not the usual bank account you use for daily spending.
Supporting your elderly parents
In their youth, your parents spent a lot of their valuable time changing your diapers, now is the time to repay them. Supporting elderly parents could be a lot more difficult financially than you would expect. Even if they do have savings and a house which they could sell, it would still fall short to cover their expenses if they have to be moved into an old age home or a home for the elderly. Deal with this by being prepared to use some of your own savings for your parents. Remember that you are the elders of tomorrow.