All of us are subject to drastic lifestyle changes that can have a negative impact on our finances, making it difficult to pay bills. It could be loss of income due to unemployment or reduced hours, a divorce, loss of a spouse, business failure or prolonged illness or medical emergency. The fact is that we never know when we might find ourselves facing a financial crisis due to a lifestyle change.
It is not just the average person that faces these problems, either. Even athletes and celebrities, who are accustomed to multi-million dollar salaries, have a difficult time managing their money when lifestyle changes occur:
- Walt Disney filed bankruptcy in 1920 after a failed business venture. Other entrepreneurs who filed bankruptcy for similar reasons include Donald Trump, Presidential Candidate George McGovern, Milton Hershey, Henry Ford and even Abraham Lincoln.
- Several movie stars and entertainers have filed bankruptcy at some point in their lives including Cyndi Lauper, Burt Reynolds, Sherman Hemsley, Wayne Newton, Kim Basinger, MC Hammer, Sammy Kershaw and Vince Neil (Motley Crue).
- Athletes are not immune from needing help from the bankruptcy court either. Jose Conseco, Johnny Unitas and Michael Vick have all filed bankruptcy.
Money Management Tips For Lifestyle Changes
In order to weather tough financial times and sudden lifestyle changes, you will need to make changes in the way you manage money. This could mean cutting expenses, finding a part-time job or even filing bankruptcy. Below are practical money management tips that can help you when your lifestyle changes cause a financial crisis.
- Examine Your Budget
There are generally ways that you can cut expenses and save money when you experience a loss of income. Examine your budget to see where cuts can be made to reduce your monthly expenses. If you do not have a budget, you need to create one. Having a budget allows you to track your money coming in and going out so that you can manage your money more wisely. It is difficult to know where you can cut expenses if you do not know what you are spending each month.
- Assess Your Credit Cards
Do you need all of your credit cards or can you transfer some or all of your credit card debt to a lower interest credit card or personal loan? It is best to contact your credit card companies, early on in your financial distress, to see if they can lower your interest rate or monthly payment. This allows you to keep paying, and them to keep collecting, a portion, of your debt – which is better than nothing. Some companies will work with you, especially if the financial crisis is short-term, so that you can avoid collection actions.
- Determine How Much You Have In Savings
Review your savings and determine how long you will have money to pay for your necessary living expenses. This will give you a timeframe and an idea of how much you need to cut back in order to stretch those savings as long as possible.
- DO NOT Dip Into Your 401(K) Or Other Retirement Savings
It may be tempting to withdraw funds from your retirement to pay bills; however, you should consult with a bankruptcy attorney prior to using these funds to pay bills. In a bankruptcy case, most retirement funds are exempt from the court and your creditors. You will need these funds for retirement and protecting them should be a priority, whenever possible.
- Analyze Your Current Debt
Examine each of your debts to determine if any of the accounts might qualify for deferment or reduced payments. Typically, student loan payments qualify for deferment when you are experiencing a financial crisis. Some mortgage accounts and car loans may qualify for deferment as well. Organize your debts by highest to lowest priority (i.e. housing, car payments, unsecured debts, etc.) so that you can pay the bills that are the highest priority first.
- Shop Around For Lower Rates
Comparison shop for automobile insurance, homeowner’s insurance and cell phone service to see if you can lower these expenses. You may be able to find a lower rate to save money each month.
- Adjust Your W-4 Withholding
You should only consider this if you receive a refund each year. If you anticipate receiving a refund for the current year, you can adjust your withholding so that you bring home more money now rather than allow the government to use your money, interest free, for the remainder of the year.
What Should You Do If You Still Cannot Pay Your Bills?
Even with the best money management tips, you may be unable to pay all of your bills fully and on time. When this happens, creditors will begin collection efforts that might include filing lawsuits to obtain judgments, wage garnishments or property seizures. To determine the best way to avoid these actions and manage your debt during this financially-difficult period, you should request free bankruptcy consultation.