Tue | May 22, 2018

Dorie Blackwood | Financial Woes

Published:Monday | February 12, 2018 | 12:00 AM
Dorie Blackwood
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Most persons get into the throes of financial woes at some point in time. Unexpected crises such as major illness, death of a family member, job loss, or investment failure can wreak havoc on the best financial plan. And often, troubles come one after another compounding the obligations and expenses. Before long, savings accounts are depleted, credit cards maxed-out, school fees unpaid, car loan, rent/ mortgage are past due, and the letters of repossession start arriving.

Financial trouble can have devastating effects on individuals and families, and is among the leading cause of separation and divorce. The embarrassment and stress of not being able to meet financial commitments, and the threat of loss, often result in sleeplessness, anxiety, depression, and anger. Sadly, family members get the brunt of the blame and abuse that often accompany the negative emotional response to money worries.

The misery of not meeting financial obligations, and creditors' intensified promptings and coercion to pay, can worsen medical conditions such as high blood pressure, diabetes, and gastrointestinal illnesses, and lead to substance abuse and risk-taking behaviours. The psychological and medical reactions to stress will very likely also affect work and work relationships negatively.

The problem does not go away by dodging creditors. Ignoring the issue exacerbates the problem and ruins one's reputation. Remember that information on loans and delinquency in the formal sector (including utilities) is available to the credit bureaus, and a negative report could affect creditworthiness in the future. So lapses in making bill payments should to be taken in hand, promptly.

 

MAKE A BUDGET

 

Admit the circumstances as they are, and discuss with a supportive significant other. The emphasis should be on working through a process, not blaming yourself or others for the current state of affairs. Make a list of all outstanding and overdue debts to ascertain the magnitude of the problem. Then design a workable budget using current income. List all fixed expenses, (those which do not change) and then variable expenses. It is that latter group that provides flexibility.

 

REDUCE EXPENSES

 

Examine each item and determine where you can cut. Get granular - ask whether there is need to buy a specific brand of sugar, rice, toothpaste, and flour, or will the generic, standard products suffice. Devise ways to cut electricity, water, and phone bills. Start preparing lunch and dinner instead of frequenting restaurants. Discover the fun of home entertainment; absolutely stop buying clothes (chances there are enough clothes and shoes in the closet to last a year). Carpool to save on travel expenses, cook several meals on the weekend, and freeze them.

There are many cost-saving activities that are applicable to each family's situation. Write them down and commit to doing what's necessary. Without giving full details, let older children understand that there is a financial crunch on, so spending on non-essentials is restricted. Children understand.

Drastic situations require drastic actions. If necessary, sell one of the cars; vacate the expensive house and rent more affordable accommodation. Sell nice-to-have assets and pay down the loans. See a financial counsellor if you need help. Be proactive. Don't wait for creditors to repossess.

 

CONTACT CREDITORS

 

Call and visit with your credit officers. Explain the situation, as they can help to reschedule, consolidate, and restructure loan repayments. Financial institutions understand the pressures of maintaining consistent payments and some services are designed to offer relief under specific circumstances. Financial institutions are just as anxious as you to have the loans reinstated or liquidated. So don't delay.

Renegotiate loan repayment terms and conditions with friends and relatives you owe. It is not prudent to destroy relationships because of unpaid loans. In trying times, it is usually friends and family who come to the rescue, and so don't damage a strong support system.

 

INCREASE INCOME

 

We are a resourceful people, with untapped potential. Reflect on the talents that could produce extra income. Dressmaking, auto mechanic, transportation, gardening, cooking, and baking are marketable skills that can add to the family's income-earning capacity. Explore opportunities for part-time work. Use the contacts among friends, associates, and family to identify prospects. Older children can do chores, and reduce the cost for domestic help. The extra funds should go towards reducing loan balances and gradually relieve the pressure. In the meantime, do not commit to new expenditures.

 

GOING FORWARD

 

Learn from the lesson. Make the sacrifices to live well within the regular, earned income. Conserve. Save. The advisers recommend that one should retain between six months to one year's income in cash or near cash items. That will provide a buffer against unexpected events. Keep insurance policies current. Constructively make plans for dependent family members. Ask the 'what if' questions, and work through the viable options. Avoid speculating with funds the family absolutely needs. Finally, be conservative when accessing new debts.

- Dorie Blackwood is a chartered life underwriter, Fellow Life Management Institute and a learning and development practitioner. She may be contacted at dblacck101@gmail.com.