How to Prepare for Financial Challenges

If this pandemic has taught us anything, it’s that we can’t predict the future or how a sudden change of conditions might affect us financially.

Unfortunately, most Americans were woefully unprepared for the shutdowns and job losses that came with the pandemic. The best way to avoid this happening again is to put plans in place for unexpected events.

 

A recent AARP study of adults over 30 revealed these key findings:

• Just under half of adults ages 30 and older experienced an unexpected financial challenge in the past year — and during that same time period, the majority experienced more than one challenge.
   
• Unexpected financial challenges can happen to anyone, regardless of their income level, generation, gender, or race/ethnicity.
   
• Some groups have a greater propensity to experience an unexpected financial challenge (e.g., Millennials, Gen Xers, women, communities of color, and those with household incomes of less than $40,000). 
   
• A medical expense, a necessary repair, and a loss of income are the most often reported types of unexpected financial challenges.
   
• The median cost of an unexpected financial challenge ranges between $3,000 and $4,000. Higher median costs, however, are seen among those with household incomes of $75,000 or more.

 

• Recovering from a financial challenge can take months or even years.

 

These strategies can help you weather any financial challenges that might arise – and lessen its negative impact on your life:

 

1. Have sufficient savings. Set aside enough money in things like checking and savings accounts, money market accounts, and short-term certificates of deposit to cover 3-6 months of living expenses. You should have this in place before you begin investing money elsewhere.

 

2. Make a budget. If you don't already have a budget, there's no time like the present to get started. The first step to making a real change is to measure where you’re at right now.

 

3. Consider how you would reduce your monthly expenses. You don’t have to make changes now, but take a look at your monthly bills and see where you could alter your spending if you needed to. You’ll feel most financially secure with a plan already in place.
    
4. Be aggressive with your bills. Get organized and sit down with all your bills twice a month to pay the bills that are coming due. Many families waste money every month on late fees and other penalties.

 

5. Reduce your credit card debt. Credit card interest can really eat into your budget every month. If you have your emergency savings taken care of, this is now the best place to put any extra money after your expenses have been worked into your budget.

 

6. Find a less expensive credit card. If the interest rate is high on your current card, shop around and see what you can find. You may be able to receive a zero-interest offer for balance transfers or a greatly reduced interest rate, at least to start with.

 

7. Earn some extra cash. Establish a second income source. This is especially handy if you happen to lose the first. Sell some of the stuff in the garage, attic, or basement that you don't really need and use the extra cash to build up your savings or pay off credit card debt.

 

“Financial hiccups happen to everyone,” says Peter Testani, Senior Vice President Investments for David Lerner Associates. “Those who are ready for them are better able to get back on their feet quickly.”

 

 

 

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. 

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC.