We all have financial storms.  The severity of the storm depends on how well we’re prepared for it.  If we don’t have money in savings and are swimming in debt the financial storm might turn into a hurricane.  However, as the unexpected storm approaches and we have 3 – 6 months of living expenses in savings we might downgrade that storm to a rain shower.

Manage financial storms

To manage a financial storm, you must become a good storm forecaster.  Financial storm forecasters see the storm on the horizon and make changes to account for what lies ahead.  Of course no one can be perfect at forecasting as you probably understand from watching your favorite weather man, but paying attention can make a dramatic difference in the type of storm you have to weather.

Anticipate changes

The first question we need to ask ourselves is: do we see clouds in the sky?  In other words, do we anticipate life changes within the next year?  Good examples of these might be a new addition to the family, moving, poor company performance where we’re employed, health complications and more.  All of these things may be good indications that we’re going to need to spend some money and we need to get prepared.

Is it really a financial storm?

After seeing something on the horizon, we then need to ask ourselves – is the storm really a financial storm?  Questions we might ask to identify a financial storm include the following:

• Is their cash on - hand in emergency savings that might be sufficient?  If so, this may downgrade the urgency.  Emergency savings is there for a reason.  Sure it was hard work building it, but it’s their to use for an emergency, so don’t hesitate when you need it.
• Is it truly a need?  In other words, can we wait several days or longer before making a decision?  If so, delayed spending may bring clarity to help us really determine a want from a need.
• Is it money required for health, shelter, food or transportation?  Generally, these areas rank highest on the family priority list.  If the expense is lower in priority, we need to try to delay the expense as discussed.

Steps to deal with a financial storm

So, we have determined this is a storm and action is required.

1. Don’t panic!

There is hope in God.  God can do amazing things when it comes to our finances by way of trusting Him.  There is a reason for this storm which may be unknown to us. Trusting God in the situation, no matter how grey or ominous it looks, will bring peace and comfort.  Pray, stop and listen for guidance!

Seek first his kingdom and righteousness, and all these things shall be given to you (Matthew 6:33, NIV)

2. Involve others who can help

We can’t be afraid to ask for assistance or counsel.  We need to seek assistance from a financial counselor or church pastor.  Believe me, having another perspective on the situation can be valuable, especially if it helps us make a decision that would prevent the use of credit cards or debt.

The way of a fool seems right to him, but a wise man listens to advice (Proverbs 12:15, NIV)

3.  Conduct serious and focused brainstorming to identify options

There are too many ideas to list and it depends on the size of the storm, but the below may be a good start if a series amount of cash is required.

• Sell a large asset such as a boat or motorcyle.
• Have a yard sale.
• Get a temporary part-time job.
• Reallcoate budget spending to account for the expense, i.e., cut out entertainment or eating out for a defined period of time.
• Slow down the debt payment plan or seek credit counseling assistance to decrease payments if there is no wiggle room in the budget
• Seek assistance from family.

A last resort

The last resort would be the use of credit or debt.  This is a hard thing for me to mention because of my strong desires to pursue debt free living, however, if health is involved or other serious issues this may be necessary.  However, we shouldn’t take this step without financial counsel.  If credit is used, the important next step is to put a debt plan in place to pay it off and get back on track.

Financial storms, while unpleasant, are a test of our faith and can help us determine quickly how orderly we are managing our finances.  The better prepared, the less severe.

What are your thoughts on steps to take to manage financial storms?  Can you think of other steps that may be important to consider?

Top financial experts recommend saving $1000 in a savings or money market account to weather financial storms before you do anything else.  If you encounter a financial storm, the $1000 may just help you avoid using a credit card to repair your car, fix or replace the washing machine or some other unplanned expense.

Financial storm

Yesterday evening I encountered a financial storm only to be rescued by my emergency savings account!  I tried to drive our SUV into the garage and discovered a strange noise coming from under the hood.  I decided to restart it (sort of like a computer reboot) thinking it would resolve the issue, but it didn’t work.  Thinking it might be the battery (that’s as far as my car knowledge takes me) I hooked up the jumper cables to our other car. 

Although it restarted, it soon stalled.  Long story short, after a tow to the repair shop and a call this morning from the mechanic; I encountered a financial storm of just over $500 for a new alternator and some other maintenance. 

Use a credit card?

Pull out the credit card and pay?  No way!  Fortunately, we had the emergency savings to cover the expense. 

If you’re tracking along without an emergency savings of at least a $1000 and you have debt you’re trying to snowball, consider stopping the snowball until you have the savings.  It could prevent you from using a credit card for a storm and increasing your debt.  Financial storms happen to everyone, so you’re at risk if you don’t have the savings.

What financial storms have you encountered and did your emergency savings come to the rescue?