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Imagine if you only had one more paycheck on the way. What would you do? Could you keep your house? Could you keep your car? Could you feed your family? Could you maintain your lifestyle?
If the answer to any of those, aside from the last one, is no, you have some planning and work to do. Everyone sh0uld have an emergency fund that can cover at least three to six month’s expenses. If you were laid off today, it would probably take you a few months to get into a new job. With the current job market, you probably would not make as much as you did in your prior job.
Many people are struggling with bills and debt today. If they lose their income source, they go from struggling to non-payment to foreclosure in many circumstances. The key is to act today to deal with the situation. You can use a debt management plan or come up with your own system to stay afloat in troubled times.
Here is a step by step plan to evaluate your financial situation. Think back to the personal balance sheet as a litmus test for your ability to stay current on your debt and keep a positive net worth.
1. List out all of your debt and minimum monthly payments.
2. List out all monthly expenses including rent, food, utilities, and other needs.
3. List out all monthly income from all sources.
Subtract your monthly payments from your monthly income. If you expenses are higher than your income, adjust your budget now. If it is close, try to cut expenses or increase your income to create a bit more wiggle room.
Next, just take your expenses and multiply by 3, 6, and 12. That is how much you need in an emergency fund to continue at your current lifestyle for 3 months, 6 months, and a year. Do your savings allow you to keep at your lifestyle for as long as you would realistically need to find a new job?
Take a second look at your expenses. What can you cut? What do you really need to get by for 3-6 months when looking for a job?
These are serious questions that you should be asking yourself even if you love your job and you think you job is secure. You never know what is going to come up. If you support a family, you have even more of a responsibility to keep on top of your finances.
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