What To Do When Times Get Tough

Regardless of what’s happening in the economy, you might find yourself in a rough financial spot at different times of your life.  That can happen as a result of a big change in employment or income.   Or your situation might hit the rocks because of some huge unexpected expense.  I know something about that.

Back in 2008, my income took a major hit when the market got clobbered. I lost a big chunk of income and the investments I worked so hard to grow, shriveled.  But the worst part was that my clients’ accounts got hit as well.  It was a painful period.

Thankfully, my clients and my business survived. And to be honest, I learned a great deal during that wretched period.  I learned that it’s smart to review financial survival techniques before you need them.  I wish I did that before it all hit the fan back in 2008.  It would have saved me a lot of stress.   You face a lot less pressure when you are prepared for a problem before it actually arrives at your doorstep.   With that in mind, let’s get to work.

1.  Stabilize The Ship

Before trying to fix the hole in the boat, I had to make sure we weren’t taking on more water.  Once the income took a hit, the first step I took was to look at exactly how much we were spending and how much we could cut. There were things that we thought couldn’t live without only a few months prior but somehow we learned to live without them. It wasn’t a big deal.  I got my entire family involved in the finances.  Since this step got them really active with our finances, it proved to be a great learning experience for everyone.

We spent more time together as a family doing things that didn’t cost money.We played cards instead of going out to movies.We sat and talked instead of going out to dinner. This was a huge positive and it’s a gift I never would have gotten had it not been for the economic downturn.

I made changes at the office too.  I went over every expense and tried to determine if it was necessary or not.  If it wasn’t a requirement, I cut it.

2.  Assess The Damage And Proactively Search For Solutions

Once we brought our spending into line with our reduced income, I wanted to really understand what happened, why it happened and what I could do in the future to reduce my risks.

Obviously, I couldn’t control the stock market but I could (and should) anticipate the inevitable ups and downs and the resulting change in income.  I could try as hard as possible, but to some extend, my business income was not under my control.   I realized that the smartest risk abatement exercise was to continue to track my spending carefully and not become complacent.  I looked back and saw how our spending increased automatically as our income climbed.  There is nothing wrong with that necessarily, but it has to be measured.  Rather than become a victim of our spending, my family and I got in front of it – and we still are today – 7 years later.

We understand that situations change.  The good times won’t last forever and neither will the bad.  That’s why it’s important to spend less than comes in, build an adequate emergency fund and track the average monthly spending.

3. Consider All The Risks

Our big challenge at the time was spending.  But that not be the problem you face.  Consider the root cause of the trouble you are going through:

• Do you spend too much?
• Do you earn less than you should?
• Is your income unpredictable?
• Do your expenses fluctuate?
• Are you carrying old expensive debt that holds you down?

When things get tight your first reaction might be to tighten the belt.  That will usually help.  But it may not be the ultimate solution.   Get an objective view of what the problem is and then consider all possible solutions.  Then, prioritize each solution giving the most weight to those which will provide the most bang for the buck.

It’s easy to get emotional when things aren’t going well but it’s the worst possible reaction.  Stay calm.  Cut spending in order to stay afloat and out of debt.  Think through the root cause of the problem and then brainstorm all the possible solutions to the problem you face now and potential problems you may have to face down the road.

I’m kind of conservative.  I hate negative surprises.  By preparing for the worst, it’s easy for me to enjoy the present because I’m not in a constant state of anxiety. I learned that after going through the market debacle of 2008.  What’s your approach to economic hard times?