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How Would You Handle A Financial Setback?

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Chances are that at some point in your life you will experience some type of financial setback. Indeed, emergencies are part of life. Businesses fail. Medical bills need to be paid. The house floods.

When you experience a financial setback, it can be difficult to get back into the swing of things. However, it's important that you do what you can to get back on top of your financial situation.

Deep Breath: What are Your Options?

Before you do anything, stop, take a deep breath, and evaluate your options. When you are in the moment, it is easy to panic and start making impulsive decisions about money. Before you make decisions, take some time to figure out what your options are.

  • Can you arrange a payment plan? Does it have a reasonable interest rate?
  • Is it possible to raise money another way, perhaps through selling some of your items or starting a side hustle?
  • Have you prioritized your bills? If you have to let some slide, which ones will have the least impact on your situation?
  • Are there community services, charities, or religious organizations that can provide you with help? Food pantries, or special heating programs, and other services can help you weather a storm.
  • Would downsizing help? What services can you do without (cable, subscriptions, gym memberships, etc.)? Does it make sense to move into a smaller place?
  • Can your extended family help?
  • What is your last resort? If things are truly bad, you may need to resort to letting your home be foreclosed on, or trying to navigate your problems through bankruptcy.

In many cases, a combination of help and payment plans can help you get back on track. However, you need to make decisions after some thought. Most of the time, you can wait two or three days — or even longer — after a catastrophe or setback before you have to make a decision. Take your time and make a plan.

Preparation: The Best Way to Handle a Setback

Of course, there is no substitute for preparation. Careful preparation can reduce your exposure to the risk of a financial setback, although it might not completely protect you from all problems. There are three main things you can do to help your prepare your finances for a setback:

  1. Live below your means: One of the best things you can do is live below your means. This means that you take in more money each month than you spend. It's not just about budgeting so that you spend all your money. It's about making sure you have extra money, and that you aren't living up to your income. You want to have room to cut things out, if possible. Plus, if you are used to living less lavishly than you could, it's easier to cut out unnecessary spending.
  2. Purchase adequate insurance coverage: Adequate insurance coverage can help protect you from some costs. Auto, home, and health insurance policies can all reduce the amount of money that you pay out of pocket in a financial setback. Protect your assets, and you will be better prepared.
  3. Build your emergency fund: We all hear about how we should have an emergency fund — and it is important. Build up your emergency fund so that you can pay deductibles, pay bills, and take care of other financial problems during a setback.

What would you do in in a financial emergency?

3 Tips For Giving Gift Cards This Holiday Season

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Are you getting ready to provide gifts this holiday season? If you're anything like me, you've started your Christmas shopping already. I actually give gift cards a lot during the holidays. For my little nieces and nephew, I do a little more and buy actual toys.  But for the adults — my siblings (and their spouses) and my parents — I like to get gift cards.

CardHub.com put out a list of great ideas for buying gift cards during the holiday season. Some of the items on the list include selling your unused gift cards to recoup some of the cash, and using wish lists to ensure that you get cards that others will use — or that you get a card that you will use. If your giftee has a wishlist at a particular retailer, there is a good chance that a gift card to that store will be appreciated.

Here are some of my favorite tips from the CardHub article, along with my own observations about purchasing gift cards for others during the holiday season:

gift card for christmas1. Get Something Uniquely Enjoyable

This is related to the wishlists. Sure, you can get an all-purpose gift card that can be used by the recipient anywhere. But part of the fun of holiday gift-giving is that you give something frivolous and unique. I like to think of an experience that someone might enjoy. I find a local restaurant that the recipient might like — but not feel comfortable visiting on his or her own. Or, I get tickets to the movie theater because I know that the recipient would enjoy a movie. The idea is to make it fun and enjoyable for the recipient, in addition to being something he or she would use.

2. Discounted Gift Cards

I loved that HubCards included this item. I occasionally buy discounted gift cards using sites like GiftCardGranny.com, Cardpool.com, or purchasing through CityDeals. You can get more bang for your buck, and you can treat the recipient to something even better. Make a list of possibilities for the different people you are buying gifts for. Then, keep an eye out for discounted gift cards, as well as pay attention to social sites like Groupon and LivingSocial. You never know when the perfect discounted certificate or gift card will come along.

3. Know The Terms Of The Gift Card

The Credit CARD Act of 2009 prohibits gift cards from expiring less than five years from when the gift card was issued or last reloaded, so that's nice to know. But, as CardHub points out, there are other items to be on the watch for. Gift card issuers can charge up front fees (many all purpose cards from AmEx and Visa come with activation fees you pay at the register). Read the disclosures about the gift card to make sure that you are getting what you expect.

Also, if you buy discounted gift cards, make sure they will be valid where they are likely to be used. I once almost bought a discounted gift card to a franchise chain restaurant. Just before completing the purchase, I noticed it was a local discount, offered only at the restaurant owned locally. It would have been useless elsewhere. Be sure you know the terms, how much is available on the discounted card, and other details.

Do you give gift cards?

What’s Next For Employer-Sponsored, Tax-Advantaged Retirement Accounts?

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Everyone seems rather focused on the deficit right now. This isn't surprising, considering the fact that we have a serious budget crisis brewing in the U.S. However, a lot of the plans to “fix” the problem involve getting rid of tax incentives for the people who need them most.

One of the issues on the table is getting rid of some of the tax advantages associated with employer-sponsored retirement accounts.

Your Tax Deduction Could Disappear

One of the ways that some lawmakers hope to improve revenue is to stop providing the ability to contribute to employer-sponsored retirement accounts with pre-tax dollars. Another plan is a cap on the combined employer/employee contribution limit, reducing it to the lesser amount of $20,000 a year, or 20% of income. (Currently, the corresponding amounts are $49,000 a year and 100% income.) There are different suggestions as to how to change the tax advantages associated with retirement contributions, but all them have the possible effect of reducing the amount workers set aside for retirement.

Additionally, there are concerns that reducing the tax benefits that employers get for setting up these retirement plans would have the effect of reducing the number of plans even available. Employers are already feeling the pinch from the rising costs of health care benefits. They might not be so willing to continue offering retirement plans if the tax incentives to do so began disappearing.

Would You Still Contribute To A Retirement Account Without The Tax Benefit?

Already, there are concerns that Americans aren't saving enough for retirement — and that's with fairly decent tax benefits to do so. What happens when that incentive goes away? If you thought the retirement savings rate in America was bad already, just wait until there's no reason to sock money away in a tax-advantaged retirement account.

The flip side, of course, is that there are some people who would contribute to a retirement account no matter. If you are preparing for your future, you know that you will need to set money aside — whether or not the government gives you a tax break. While it certainly is nice to receive the tax benefits associated with retirement plan contributions, if they disappeared tomorrow, I'd still make retirement account contributions. (Of course, I contribute to a Roth IRA, so I don't get a tax deduction anyway. But we will soon be contributing to a 403b through my husband's job, so a deduction could be a very real possibility soon.)

Bottom Line

Any number of suggestions are being floated as ways to reduce spending and boost tax revenue. This means that there are a number of tax deductions and credits on the table, many of them affecting individuals and businesses. From retirement account contributions, to the mortgage interest deduction, you could soon see some of your tax breaks disappearing. This means that you will need to plan for the possibility. Decide what's important to you, and what you can handle without the tax break. Hopefully, you will decide that it's still important to make contributions to your retirement account, even if there is no tax break associated with it.

Why I’m Not A Big Penny Pincher

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Anyone who really knows me, is well aware that I'm a spender. Penny pinching isn't my thing. That isn't to say that I'm flinging money about like water. What it does mean, though, is that I don't go out of my way to save a few cents — or even to save a few dollars. While I think that saving money, setting funds  aside for the future and emergencies, is important, I don't really think that I'm going to achieve financial freedom by clipping coupons and denying myself a weekly meal in a restaurant.

Sometimes It's Worth It To Pay More

One of the biggest reasons that I'm not a penny pincher is because I honestly believe that sometimes it's worth it to spend more money. Yes, I can go to the buffet chain restaurant and load up on mediocre food. I can save a lot of money doing that, too. But I don't enjoy it as much as I would a meal from the best restaurant in town. Since I enjoy food, and good food is a priority for me, I am willing to pay a little bit more for it.

This is true of some conveniences, such as flying at a time that I consider saner than taking a red-eye, and that allows me to see my son off to school before I leave. It's worth the extra $50 to me. Of course, there are things that I wouldn't spend as much money on. I'm not big into trinkets; buying a postcard or a cheap magnet to commemorate a trip is sufficient for me.

I'd Rather Make More Money

While I believe that it's important to get good value for my money, I don't like taking the time that it takes to be really successful at some of the techniques that are often used to pinch pennies. Yes, I look for bargains. But I'm not nitpicking over a couple bucks. And I don't enjoy the coupon game. While it works for some people, and I don't think there's anything wrong with being frugal and pinching pennies, it's not my preferred method of paying for what I want.

Instead, I prefer to make more money. I have to admit, though, that I am lucky and blessed in that it isn't usually very hard for me to make a little more. I can write an extra article or two, or take on an extra project. If I want a pedicure, I can write an extra article — there's no need for me to pinch pennies for three weeks with coupons, or skip my trip to the restaurant.

Bottom Line

We all have different priorities, and we all prefer to spend our money on different things. Perhaps I'm not being as disciplined as I could be, but as long as I have a general plan for the future, and I'm taking care of what needs to happen, I don't see any reason to pinch pennies if I don't have to. What do you think? Are you a penny pincher? Why or why not?

How To Deal With Regular Bills When You Have An Irregular Income

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When your income doesn't come in 24 equal payments spaced evenly throughout the year it can be hard to make a budget. Unfortunately, this is a fact that a lot of people deal with in their life. There are a lot of industries where the pay is great in the summer time and then tapers off with the chill of winter. Or even vice versa. If you aren't careful with your budget throughout the year you can find yourself in a pinch in the off-season.

I was talking to a friend of mine who is a realtor. She was saying her income is great in the summer but then in the winter she has a hard time making ends meet. People would prefer to move in the summer since the kids are out of school and the weather is nicer, and no one wants to move around the holidays. She wanted to know how much she should have in her emergency fund to cover her winter expenses.

But I actually felt she was looking at it the wrong way. An emergency fund for emergencies and her winter expenses aren't emergencies. She knows these bills are coming, so she should plan for them, outside of her emergency fund.

The first thing she needs to do is figure out what her average monthly income is and make a budget based on that average. Part of her budget should include debt elimination, if she has debt, building of her true emergency fund, and future investments. Along with that she needs to put some money into an emergency fund. A little bit of money, not the full 3-6 months right away. She just needs to protect herself from a normal sized emergency right now.

Let's look at some pictures. (hand drawn by yours truly)

Cyclical Income

Here we have her income. The gray curvy line is her income. The black dashed line is her new budget. Now she has a budget that works for her income. Next she needs to start building what I call, her cushion fund.

cyclical income with cushion

A cushion fund is money that you set aside to fill in the gaps between your income and your budget. So during the summer months she would build her cushion fund, and in the winter months she would draw from it. This smooths out her income so it's not wild parties in the summer and Ramen noodles in the winter. It's just normal life all year-long.

This system allows her to plan for her reduced winter income and also be prepared for a true emergency should one arise. Right now, at the end of summer, she is feeling very stressed knowing her income is going to go down soon. But if she follows this plan, next year will be a different story. She probably still won't like receiving those smaller checks, but at least she will have a plan to put food on the table.

Do you have an irregular income? How do you handle it?

This article was written by Ashley over at Everything Finance. Everything Finance is a site about just that, everything related to finance. You can get information about investing, saving money, shopping, blogging, and making money online. If you like what you see here, make sure to stop by or better yet subscribe to their feed so you don't miss a thing.

Is Money A Means To An End? Or An End Itself?

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One of the questions you have to ask yourself when you begin probing your relationship to money is this: Why do I want more money? It makes sense to want to earn more money, but why are you so interested in having more money?

Think about why you want more money, and try to define some of your reasons for making the effort to amass wealth. Your reasons for striving for more money can reveal a lot about you — and your level of happiness.

Do You View Money As The End Result?

It's easy for money to become the end result. If you want money just to buy more things, or just to have more money, you have made money the end. You may not have a plan for that money. Instead, it just sits there. And the more money you have, sitting without purpose, the more likely you are to be dissatisfied. In some cases, amassing wealth can become something of a hobby — or even a measure of status. When you begin to confuse net worth with personal worth, it becomes harder to be happy with what you have. After all, there is always someone with more, and you can never get all the money there is. Without a purpose for your money, you can quickly get caught up in deciding that money is the end result, rather than viewing money as a means to an end.

Money As A Means To An End

Most of us recognize that money is a necessity. We need money to buy clothing (or at least cloth to make our own clothing), and many of us have to buy at least some of our food, no matter how great our gardens grow. Additionally, we use money to pay costs associated with maintaining an adequate living space, and for other necessities of life. Having money can help you improve your quality of life, and it can provide you with the things you need. However, it helps to have a purpose for your money, so that you are using more effectively. Plus, you are more likely to enjoy your life more when your money is used for things that bring you pleasure and a sense of fulfillment, rather than having it just sit there, granting you some perceived social status.

The first thing to do, when you want to use money as a means to an end, is to figure out your priorities. Decide what's important to you, and then direct your financial resources in such a way as to make those important dreams a reality. Try to be as specific as possible. Sure, you want to save up money for a comfortable retirement. But what do you want to be comfortable doing? Consider what your ideal retirement would like, whether it's travel, volunteer work, or entertaining family. Then, make a plan for your money so that you can accomplish your goals. The same is true if you want to go back to school, pay down debt, donate more to charity, or build alternative income streams so that you can quite your day job.

Rather than looking at money as an end itself, consider money a tool to help you accomplish your goals. You'll be more likely to live the life you want — and have the financial resources to succeed.