There are specific rules in life that you should never break under any circumstances. For example, bringing uninvited guests to a wedding or not picking up your dog’s droppings in the park. The same goes for putting fruit on a pizza or crossing streams if you’ve ever dreamed of becoming a Ghostbuster.
There are rules to follow when it comes to your personal finances. But sometimes rules have to be broken, especially during a financial crisis. So with that in mind, here are six personal rules you can skip when you need to.
1. Borrow money from friends or family.
Anytime you’re in dire financial straits, the first place you turn will likely be your friends and family. But, as the saying goes, “Before you borrow money from a friend, decide what you need most. “
There are actually several reasons for this feeling. For starters, it’s embarrassing. While admitting that you are in a difficult financial situation is the first step in rectifying the problem, you may not want to let others know how serious your situation is.
In addition, this loan application could be them on the spot. In other words, they may feel pressured to lend you money because they are a relative or close friend. And, it could also put them in financial difficulty.
As if that weren’t enough, there could be some misunderstandings. For example, since there may be an informal agreement, you may be too relaxed when it comes to paying them back. And, in some cases, that person may hold that over your head and have a “you owe me” attitude.
However, if you need the cash to cover necessary expenses like groceries or rent, this could be your fastest and most affordable option. Just make sure that you have a strong relationship with the lender and that you don’t put financial pressure on them either. And, to avoid conflict, have a loan agreement in place.
2. Save 10% of your income.
The general rule was to save 10 percent of your income when it came to retirement savings. Not only is this less likely today, but it is also not a priority when facing a financial crisis.
“While this is a great start and certainly better than nothing, it certainly shouldn’t be used to gauge success,” Michael Troxell, senior wealth manager at USAA, told The Huffington Post. “This number will not be enough for 90% of people, especially with longer life expectancies and rising healthcare costs. “
A significant problem, he said, is that the 10 percent rule ignores expenses. “It’s the spending that ends up hurting pensions, not savings rates during working years,” Troxell said.
Instead of using a specific percentage as a goal, Troxell suggests eliminating unnecessary expenses and saving as much as possible.
3. Don’t withdraw from your retirement accounts.
Even without being in your presence, I can see your jaw drop. To secure your financial future, you should never, ever touch your retirement savings. If you do, you’ll be forced to postpone your retirement or take a part-time job during your golden years.
However, you may not have other options when you face serious financial difficulties. Of course, this should only be done after you’ve exhausted other options, like running out of your emergency funds or borrowing from friends or family.
You should also consider other resources before you withdraw from your retirement accounts, such as your 401 (k), IRA, or annuity. For example, if you are having trouble paying for drugs, see if there is an assistance program available to you. Or look for a home equity line of credit.
Be aware, however, that you have to pay regular taxes on the money you receive if this is your last resort. In addition, you may also be subject to tax penalties if you are under 59 and a half, which is often the case with annuities. But, depending on the situation, such as a disability that prevents you from working longer, this penalty could be waived.
4. Always pay your bills.
When your income goes down and you can’t reduce your expenses, you may reach a point where you can no longer pay your bills. Missed bill payments are usually accompanied by late fees and significant damage to the credit score.
However, this is not the case all the time. If you are unable to pay your bills, you are strongly advised to postpone your payments. The practice of delaying payments has become more common during the pandemic.
“Currently, some mortgages, auto loans, credit cards, private student loans or personal loans are delaying payments,” says Jen Hemphill, Certified Financial Advisor, author and host of the “Her Dinero Matters” podcast. “There may not be any late fee penalty for not paying and harming your credit, but you need to understand how the sole proprietorship deals with the interest portion and how that will impact. on you financially. “
Even after the pandemic, if you’re struggling to make ends meet, Hemphill recommends calling every business you use and negotiating a payment plan with them.
5. Avoid plastic, that is, credit cards.
It is strongly suggested that you have enough cash on hand to cover at least three to six months of living expenses. If you lose your income and your bills start piling up, an emergency fund will keep you afloat. In fact, less than 4 in 10 Americans can handle an unexpected expense.
Despite this, experts warn that you shouldn’t be using your credit cards to cover financial emergencies. But, “The great thing about having access to credit is that you can access it when you need it, and practicing good credit habits at the right times means you’ll have flexibility in the event of a disaster,” Gregory wrote. Karp and Kimberly Palmer for NerdWallet. “Credit cards are not a substitute for income, but in an emergency you can use them to survive an interruption in your income. It means giving yourself permission to break some of the “rules” until the crisis passes. “
Here are seven credit “rules” you can break in an emergency.
- Never carry a month-to-month balance. The cost of credit card debt can be high. But it may be worth it if the alternative is to do without the essentials or if you need to save money for items that are not available on credit.
- Pay more than the minimum amount owed. “Paying only the minimum keeps your account in good standing when access to credit is critical,” Karp and Palmer add. “It won’t do much to reduce your debt, but it can help keep you afloat. “
- Keep your credit usage below 30%. Second, using up a large chunk of your credit won’t permanently damage your credit score.
- Redeem the rewards for maximum value. Even though you have to convert the rewards to cash to pay for basic expenses, it doesn’t make sense to sit on hundreds of dollars in rewards when you have to make ends meet.
- Credit cards are not an emergency fund. It is not always easy to put money in a contingency fund, and in the event of a disaster, it is often too late to do so. In this case, credit may be your only option.
- Don’t just park your debt at 0%, pay it off. With a 0% introductory APR period, you can transfer a high interest balance to a credit card that gives you time to pay off the balance. Of course, eventually you will have to pay off the debt, but that can wait until you are back on your feet.
- Don’t hurt your credit score. If you have been able to build good credit, you can use it when needed.
6. Find a second job.
If you are strapped for cash, it can be tempting to find a second job. But, will the extra income justify the extra time and associated expenses?
For example, if you are a parent, you may need to factor in child care expenses. So let’s say you bring in an extra $ 600 per month, but babysitting takes half of it. Is it really worth the time and expense?
Unless you can work from home, you also factor in transportation like gasoline or transit fares. As if that weren’t enough, a second job could interfere with your day-to-day work and cause you to miss out on new opportunities. And, the extra income could put you in a higher tax bracket.
That doesn’t mean you should undo this altogether. But, for some people, getting a second job is not always sustainable.
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