In life, there are specific rules that you should never break. For example, bringing uninvited guests to a wedding or not picking up your dog’s feces in the park. The same goes for putting fruit on a pizza or crossing streams if you’ve ever dreamed of becoming a Ghostbuster.
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There are rules to follow when it comes to your personal finances. But, sometimes the rules have to be broken, especially during a financial crisis. So with that in mind, here are six personal rules you can ignore when you need to.
1. Borrow money from friends or family.
Whenever you find yourself in a precarious financial situation, you will likely turn to friends and family first. 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 you’re in a tough financial spot is the first step to solving the problem, you may not want to let others know how serious your situation is.
Moreover, this loan application could be spot on. In other words, they may feel obligated to lend you money because they are a relative or close friend. And it could also put them in financial difficulty.
As if that were not enough, there could be misunderstandings. For example, since there may be an informal arrangement, you may be too relaxed when it comes to paying them back. And, in some cases, that person may keep it above your head and have a “you owe me” attitude.
However, if you need money to cover necessary expenses like groceries or rent, this might be your quickest and most affordable option. Just make sure that you have a solid relationship with the lender and that you are not putting financial pressure on them either. And, to avoid any conflict, have a loan agreement in place.
2. Save 10% of your income.
The general rule was to save 10% of your income when it came to retirement savings. Not only is that less likely today, but it’s also not exactly a priority in the face of 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. “That number won’t be enough for 90% of individuals, especially with longer life expectancies and rising healthcare costs.”
A significant problem, he says, is that the 10% rule does not take expenses into account. “It’s spending that ends up hurting pensions, not savings rates during working years,” Troxell said.
Instead of using a specific percentage as your goal, Troxell suggests cutting out unnecessary expenses and saving whatever amount you can.
3. Don’t withdraw from your retirement accounts.
Even without being in your presence, I can see your amazement. To secure your financial future, you should never touch your retirement savings. If you do, you’ll be forced to postpone retirement or take a part-time job during your golden years.
But, you may have no other options when you face significant financial difficulties. Of course, this should only be done after you’ve exhausted other options, such as depleting your emergency funds or borrowing from friends or family.
You should also consider other resources before withdrawing from your retirement accounts, such as your 401(k), IRA, or annuity. For example, if you are having difficulty obtaining medication, see if there is a support program available to you. Or consider a home equity line of credit.
Be aware, however, that you must pay regular taxes on the money you receive if this is your last resort. Additionally, you may also be subject to tax penalties if you are under age 59.5, 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 drops 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 credit rating.
However, this is not the case all the time. If you are unable to pay your bills, it is strongly advised to defer your payments. The practice of delaying payments has become more common during the pandemic.
“Currently, some mortgages, car loans, credit cards, private student loans, or personal loans are deferring payments,” says Jen Hemphill, Certified Financial Advisor, author and host of the “Her Dinero Matters” podcast. “There may be no penalties in terms of late fees for not paying and hurting your credit, but you need to have a good understanding of how the sole proprietorship handles the interest portion and how that will affect you financially.”
Even after the pandemic, if you’re struggling to make ends meet, Hemphill recommends calling each company you use and negotiating a payment plan with them.
5. Avoid plastic credit cards.
It is strongly suggested that you have enough money set aside to cover at least three to six months of living expenses. If you lose your income and your bills start to pile up, having an emergency fund will keep you afloat. In fact, less than 4 in 10 Americans can manage an unexpected expense.
Even so, experts warn that you shouldn’t use your credit cards to cover financial emergencies. But, “The beauty of having access to credit is that you can tap it when you need it, and building good credit habits in good times means you’ll have flexibility when disaster strikes,” write Gregory Karp and Kimberly Palmer for NerdWallet. “Credit cards are not a replacement 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 over a balance from one month to the next. The cost of credit card debt can be high. But it may be worth it if the alternative is to go without necessities or if you need to save money for items that aren’t available on credit.
- Pay more than the minimum amount due. “Paying only the minimum keeps your account in good standing when access to credit is essential,” Karp and Palmer add. “It won’t do much to reduce your debt, but it can help you stay afloat.”
- Keep your credit utilization below 30%. Second, using up a lot of your credit won’t permanently damage your credit score.
- Redeem rewards for maximum value. Even if you have to convert rewards into 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’s not always easy to put money into a provident fund, and when disaster strikes, it’s often too late to start. 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, you will eventually have to pay off the debt, but that can wait until you get 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. Get a second job.
If you’re short on cash, it can be tempting to get 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 childcare costs. So, let’s say you bring in an extra $600 a month, but childcare takes up half that. Is it really worth the time and expense?
Unless you can work from home, you also factor in transportation like gas or public 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 completely cancel it. But, for some people, getting a second job isn’t always viable.
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