It is almost a certainty that at some point in your adult life you will face significant financial hardship. Whether it is linked to tragedy, a lack of good judgment or a costly experience no one in this world is above the loss of family, a bad business deal, or an unforeseen dissolving of a physical asset. Financial hardship is a reality of life that is not an “if” but absolutely a “when”.
In this article, you’ll find 5 ways to plan for financial hardship in order to avoid the devastating effects of things like bankruptcy.
1. Have a plan in place
This is exactly what it sounds like.
It is a wise thing to not go through life thinking bad things cant happen to you. Most people fall back on family or sell something, but more importantly, should be the topic of how to stop the bleeding. This can be a list of expenses, to how much money you have saved up.
Properly designating your monthly overhead to cover what you deem to be most important in the face of uncertainty is paramount. It is almost guaranteed by the nature of existence that we’ll get overwhelmed by a bad situation, and having that plan in place can bring clarity and guidance in moments of discomfort.
2. Have a safety net
The well-known financial safety net is something any individual with assets should have. Whether it is 6 months of expenses tucked away in a bank account or things you can readily liquidate, having something to break your fall will aid in recovery.
The key to this tactic is knowing what are your liquid assets and using them for what they are meant for. You wouldn’t sell an income property to buy a new car, and you don’t use your emergency fund to go on vacation.
Set your safety net and leave it alone.
3. Prepare for the unexpected
For most people having at least one backup plan is acceptable, however, it is worth your time to expect the unexpected. If you have grown a foundation of wealth and assets you should have additional layers of protection.
For example, flood insurance, life insurance, and investments are the main difference of things you will likely never use compared to the nest egg you have built up. The equation in this situation is that you have to match the level of success you have to the layers of support you need. Not doing so will cost a lot more over time.
Financial hardship can hit hard and fast… having a mitigation plan in the case of losing everything is important. Differentiate between what is yours that you need (house, car, ext.) and things that are assets easily liquidated and replaceable (sellable items like antiques, stocks, income properties).
4. Know your rights
Know and understand the law as it pertains to you or find someone who does. From malpractice lawsuits to predatory real estate investors, in order to be successful in today’s world, you must understand anything and everything in legal vernacular, in relevance to the life that you live.
Being sued, or having to sue, is an expensive process that can, and will, lead to the collapse of your personal empire. By knowing when to employ forceful tactics, or when to leave something alone can save you an enormous amount of hardship in the long run.
5. Worst case scenario
There is a simple phrase that fits into any driven individual; “plan for the worst, work for the best”. This is a nuance about self-awareness, and knowing that you have the stamina to step into the unknown.
When things go sideways having the aptitude to calm your emotions and approach challenges accordingly can be the difference between surviving a situation or restarting financially.
This encapsulates all of life from starting a new business, or having children to growing old, and planning for retirement. The list of problems that can come up is literally endless and unforeseen; there is no way of knowing what may or may not happen tomorrow. Markets can collapse overnight, business partners can decide to bail, and at the end of the day it is not what happened to you it is how you react to the situation.
This falls straight between the lines of living within your means, to planning for troubled waters ahead. Sometimes it is strictly financial, other times it can simply be time management. You have many assets naturally without materialistic success, and these can also be put into jeopardy which will inherently trickle over into your financial stasis.
Planning for hardship is one of the most challenging things you need to do for yourself. It takes a great level of emotional intelligence and self-awareness to employ a backup plan with safety nets. To have another level behind that and to plan for the worst. Rather than living in fear of losing everything, it is easier on the mind to think of it more like your kitchen fire extinguisher; better to have it and not need, than need it and not have one.