Would You Survive A Personal Financial Crisis?
If we’ve learned anything from the recent Global Financial Crisis, the collapse of Lehman Brothers or even the financial collapse of Iceland, it’s that no one is completely protected from a financial crisis.
According to the ACTU in 2009, since the beginning of the GFC, 420,000 Australians either lost their jobs or were subject to pay cuts or reductions in hours, largely due to market forces which had nothing to do with the Australian economic climate. 420,000 jobs affected is a lot and it would be safe to assume that not all of those families or people had sufficient economic security to weather the storm. The number of people who were unable to repay their mortgages and lost their homes also hit record highs in the last three years, as has rental property evictions.
A personal financial crisis could stem from a number of things, not limited to a recession or general market downturn. Other factors could include losing your job, an expensive, sudden or severe health problem, an expensive law suit or a bad business decision.
Who is at risk and what can you do to stay in the green?
Certain types of people and families are at an increased risk of suffering a personal financial crisis.
Casual employees
Those in casual employment are often the first to be dropped when a company is struggling financially since casual employment arrangements offer very little job security. This was proven during the GFC when many families suffered.
While you’re working, you obviously need to save at least enough money to keep you afloat for a couple of months if you lose your job suddenly. If you’re a casual employee of a company who has been let go, contact your union and make sure you have been afforded all the rights and payments you are entitled to.
Business owners
Small business owners probably felt the GFC harder than anyone and there have been record numbers of failures in recent years. Small businesses typically have small, unsecure revenues and little financial security when compared to medium or large businesses. A family or small business failing usually leads to a dilapidating financial crisis.
Small business owners should have a plan for when hard times hit, put together with the help of your accountant. One of the biggest mistakes made is small business is not knowing when to call it a day. You should pull the pin on a business at a time where you still have enough money for your family to survive until you work out an alternate revenue source.
Women
Statistically women are less financially secure than men. This is true in Australia and across the world. They are more likely to be in casual employment, less likely to own a house or investments and earn less on average. Single mothers also typically carry the primary financial responsibility for their children. For these reasons women should pay careful attention to their finances to ensure their economic independence.
You should not rely on another person to provide for you completely financially if it means exposing yourself to the risk of becoming financially incapacitated. This doesn’t mean all women should work, but you should have savings, identify the equity in any shared assets you have and be involved in the management of your personal and household finances. You should also be extremely careful about any financial commitments you make such as co-signing a mortgage, taking out other loans in your name or funding large purchases in someone else’s name. When you commit to something ask yourself, if I had to pay this by myself, could I make the repayments?
If you are a single mother, ensure you’re receiving all the government benefits you are entitled too.
Mortgagees
People who are unable to make their mortgage repayments or who have an undesirable home loan are at dire risk of suffering from an economic disaster since if they can’t make their repayments they seriously risk losing their home. Having your family home foreclosed is a tragic nightmare that nobody would want and has wide reaching effects for a family or individual. For that reason, you should make your mortgage repayments your first financial priority.
When choosing a mortgage make sure you find one which suits your budget and allows room for unforeseen circumstances like losing your job.
If you fall into one of the above categories, you should seriously consider working on your financial security by saving enough money to live for a long period if you lose your main source of income, or worse.
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One Response for Would You Survive A Personal Financial Crisis?
Definitely a good idea to save enough money to have a buffer if you lose your job etc. I’d also add that it’s important to remember that you’re not alone. There will be times that you can help your family and other times that your family can help you too. It takes a lot of the pressure off having family who can work with you in the tough financial times.
