45% of Americans do not have savings to cover 3 months of living expenses.
1 in 3 Americans has less than $5,000 in retirement savings.
21% of Americans have no retirement savings at all.
46% of Americans are guessing at how much money they need for retirement.
Are you shocked yet? Here’s another eye-opening statistic…
1 in 4 65-year olds will live past 90.
Millions of adults in midlife and after are experiencing a growing financial crisis made worse by COVID-19. Closed businesses, massive layoffs and loss of healthcare benefits can feel like walking on eggshells when it comes to financial security. Add to this, additional losses from declining stocks, bonds and retirement funds, and life feels even more unsettling.
By midlife, we all hope to accumulate sizeable savings accounts that are well invested for our future. The truth is, life circumstances like COVID-19 often get in the way. However, job losses, business setbacks, child rearing expenses, divorce, chronic illnesses, and increasing costs of living all diminish the nest egg we expect to build. Plus, student loans, mortgages, credit card balances and other debt obligations can make it seem nearly impossible to cover monthly household expenses, let alone reach financial independence. For adults in midlife or after, the ability to replenish losses and cover debts can be daunting without the years necessary for financial compounding.
There are many actions adults can take right now to address their current financial situation or prevent future crisis. The key is to take ownership of the situation, and get help if necessary. There are more resources available than ever before to dig out of a money hole.
10 Actions to Reduce and Prevent Bankruptcy or Financial Crisis in Midlife and After
1. Take control of the situation
Even if circumstances can are at fault for your financial situation, you need to be the one who takes responsibility for climbing out of it. If you tend to act like a victim of circumstances, the first step is to change that belief. The way to do this is choose to be positive, and consider it a temporary situation that you are now reversing. Old beliefs or behaviors regarding money and spending may need to be addressed. You can get help from a Financial Advisor if you need.
2. Review Spending and Set Up a Household Budget
Outside of household expenses, where do you spend the most money: mortgage or rent, food, alcohol, clothes, toys, travel, entertainment, hobbies, etc.? Get a handle on what you spend each month for essential versus non-essential living expenses. Creating a system for allocating your income and other financial benefits to essential (including healthcare and debts) and non-essential living expense categories will help you meet your obligations first and foremost. Free personal finance software tools such as Mint, PocketGuard, YNAB, Mvelopes and Goodbudget, can help you set a budget and stick to it. Making an agreement, in writing if necessary, with family members regarding new spending guidelines will help ensure they support these goals.
3. Start or Build an Emergency Fund
In today’s job market, an emergency fund can act an insurance policy for you and your family. Also, it is essential in case something unplanned or unexpected happens such as a family member gets sick or into an accident, or if immediate car or home repairs are needed. While 3 months is the minimum, the general rule of thumb is to set aside the equivalent of 6 to 12 months of expenses in your emergency fund. If this feels aspirational, then start with smaller goals. For example, build up $500 in emergency funds, then $1,000, and keep increasing the amount until you reach your target amount.
Choose a place to keep your emergency fund in a separate interest-bearing savings account – even at an entirely different bank – so it is out of sight until you really need it. The goal is safety, not return. Set aside a percentage of your take-home pay each month and immediately put it into your account. You can set up an automatic deposit or separate direct deposit account with your employer on payday, if available. Then find creative ways to build your account balance faster such as tax refunds or extra working hours. Every few dollars can help. Continue building your account even after you reach your goal to cover increases in household expenses and replenish any money that was taken out.
4. Save Aggressively
Once you have met the requirements of your emergency fund, continue to save aggressively to meet other goals. These may include travel, celebrations, retirement, death expenses, and more. Open up separate sub-accounts for each of these goals. Decide to contribute to each of these accounts every month, or one or two at a time if more manageable. Contribute as much as you can. Allow these goals to motivate you to cut back on other spending, such as eating out, concerts, electronics or a new outfit.
5. Pay Down Debt
- Create a Plan: Before you start, outline the types of debt you have (credit card, student loan, mortgage, car loan, and other personal loans). Use this information to create a repayment plan spreadsheet. List each loan type, debt amount, interest rate, and repayment schedule. Establish start dates and how much will be paid every month. This will help motivate you while you follow your plan.
- Pay Off the Most Expensive Debt First: Sort your credit card and loan interest rates from highest to lowest, and then tackle the one with the highest rate first. Pay off the balance with the highest annual percentage interest first, while continuing to make the minimum payment on the rest of your cards and debt to not damage your credit rating.
- Pay More Than the Minimum Balance: To get ahead of your debt, you need to pay more than the minimum balance on your credit card statements each month. Paying only the minimum prolongs your debt payoff. You can shorten payoff times by choosing to make weekly instead of monthly payments, or by exceeding your minimum payment amounts.
- Take Advantage of Balance Transfers: If you have a high-interest credit card with a balance that you’re confident you can pay off in a few months, look for another card that offers a zero-interest balance transfer. Be sure to pay off the debt before the balance transfer expires, or else you’ll possibly face a much higher interest rate.
- Change Your Habits: Your daily habits, thoughts and lifestyle got you into this situation. Think about how you spend money each day, week or month. What can you do without, or buy less frequently, without sacrificing your lifestyle too much? Can you bring your own lunch to work? Now that you’re used to being home, can you go out less and enjoy entertainment at home more often?
- Stop Your Credit Card Spending: Want to stop adding to your debt? Remove all credit cards from your wallet when you go shopping. Stop using them until you have your finances under control.
- Apply Monetary Gifts, Work Raises and Bonuses Toward Debt: If you receive a money present, a raise or a job bonus, allocate that money toward your debt payoff plan. Avoid any temptation to spend the money on things like a luxury purchase or vacation.
- Delete Credit Card Information From Online Stores: If you shop online often, you may have stored credit card information on sites. Clear the information from each site to make it more work to buy again, especially for purchases you don’t need. If there are recurring charges, reconsider if you need to continue them every month.
- Sell Unwanted Gifts and Household Items: Do you have birthday gifts or old wedding presents sitting unused in your closet or basement? Choose items you can sell on eBay or Craigslist. Research the items to determine a fair and reasonable price. Then, use the money to pay down your debt balances.
- Reward Yourself When You Reach Milestones: Don’t think of paying off your debt as punishment. View it as a goal that you are achieving and stay motivated until it’s paid off. Set a reward that is not too expensive. For example, if you reduce your debt by a third or half within a short period of time, treat yourself to a fun night out.
6. Set Joint Financial Goals and Review Regularly
The best way out of a financial crisis and building a secure future is making a plan that prioritizes your goals, and sticking to it. Separate your goals into three categories depending on the amount of money and time frame needed.
- Short-term financial goals are more specific and may take under a year to achieve. Examples are building your emergency fund, saving a percentage of your income, eliminating a portion or all credit card debt, and finding a financial advisor. They may also include buying furniture, or paying for minor home or auto repairs.
- Mid-term financial goals can’t be achieved right away but shouldn’t take more than a few years to achieve. These include purchasing a car, making a career change, starting a business, paying for a wedding, or paying off larger debts.
- Long-term financial goals are over five years and require longer commitments and more money. Primary ones include paying for children’s college education, funding retirement, and taking a dream vacation.
Some tips: One of the best tools to use for your goals is SMART planning: Specific, Measurable, Achievable, Relevant, and Timely. For accountability, organize your goals and monitor progress on a monthly or quarterly basis. Also, an online retirement calculator can help you estimate your annual living expenses during your retirement, or you can speak with a financial advisor.
7. Create new Income Streams
With an uncertain economy and changing job market, it is desirable to diversify your income using multiple income streams. Not only can these can help cover extra expenses and fund your mid- and long-term goals, but the money can add up over time. Besides taking a part-time job with Uber, here are options that can be up and running in under 12 months.
- Offer a service: You may be skilled in a specific area such as home repairs, computer maintenance, or tax preparation that you can offer for compensation.
- Sell products: Try selling products you make such as jewelry, clothing, woodwork or a new invention. Or you can be a reseller or affiliate for others’ products.
- Create a course or program to teach a specific skill: Some popular topics are online marketing, public speaking, life coaching for a specific group, online courses and retreats. Also, it is easy write a book and self-publish these days.
- Start a side home-based business: You might enjoy monetizing a personal passion or hobby. Examples are home organizer, event planner, virtual assistant, personal shopper, freelance writer, baker, and property management businesses.
- Start a blog or YouTube channel and earn advertising revenues: If you consistently publish quality content, relevant advertisers may pay to advertise on it.
- Take paid surveys: These don’t pay much but are easy and fun to do. Popular companies include Survey Junkie, LifePoints, Inbox Dollars and Swagbucks
8. Find Unclaimed Money
If a business, government agency, bank or other source owes you money that you don’t collect it is considered unclaimed. Today, there is more than $24 billion waiting for owners to claim. You don’t need to hire a company to find it. You can find it on your own for free using official databases. You will need to put in the time and check multiple places.
- Search from Banking and Investments: Unclaimed funds from abandoned accounts, deposits from credit unions, lost savings bonds, or failed financial institutions are listed with the Federal Deposit Insurance Corporation. The Securities and Exchange Commission also lists enforcement cases in which a company or person owes investors money.
- Search in your State: Businesses that can’t locate the owner send money to state-run unclaimed property offices. Unclaimed funds may include bank accounts, insurance policies, or your state government. Start your search with your state’s unclaimed property office or online multi-state database using your name, even if you’ve moved to another state. Each state has its own rules on how to prove you’re the owner in order to claim the money.
- Search from Employers (who may owe you money): Search if you think you may be owed back wages from your employer, or pension from employers that went out of business or ended the defined pension plan. The Department of Labor may recover back wages for you if your employer broke labor laws. DOL holds unpaid wages for up to three years. DOL has a database of workers who have money waiting to be claimed.
- Search from Insurance: Look at the U.S. Department of Veterans Affairs database for unclaimed insurance funds for money owed to current or former policyholders or their beneficiaries. Also, you may be eligible for a refund issued by the U.S. Department of Housing and Urban Development if you had an FHA-insured mortgage.
- Undelivered and Unclaimed Federal and State Tax Refund Checks: The Internal Revenue Service has millions of dollars in tax refunds that are undelivered or unclaimed every year. If you move without notifying the IRS or the U.S. Postal Service, your refund check may be returned to the IRS. Check the IRS’s Where’s My Refund page online. If you are eligible for a federal tax refund and don’t file a return, your refund will go unclaimed. Even if you aren’t required to file a return, it might benefit you to file if federal taxes were withheld from your pay and/or you qualify for the Earned Income Tax Credit. If you did not file a tax return because your wages were below the filing requirement, you can still file a return within three years of the filing deadline to get your refund.
9. Invest For the Future
Investing is complex and requires in-depth knowledge of money and financial markets, as well as the range of available investments. Avoid questionable “get rich quick” schemes. Consider working with a certified Financial Advisor to create a personalized portfolio that can accelerate the growth of your financial assets to meet all your goals.
10. Make Lifestyle Changes To Lower Future Expenses
There is a growing lifestyle trend now to downsize and simplify. Tiny houses are replacing larger homes. Emptying paid storage units can save considerable hundreds or thousands of dollars over time. Also, better self-care including stopping smoking, healthier eating, exercise routines, and other preventative healthcare practices, can go a long way toward reducing the likelihood of future body and mental health conditions that lead to high medical expenses.
Lastly, it is never a good idea to withdraw money from your IRA or retirement plan due to major penalties. However, if you’ve been hurt financially by COVID-19, you can now withdraw up to $100,000 from your retirement savings without incurring a penalty. While this may seem tempting, if you do you’ll risk falling short when your career ends and you must live off your accumulated savings and investments. As a general rule, exhaust all other options first.
Experiencing financial crisis in midlife or after does not have to be a long-term or permanent burden. Once you assume responsibility and put a plan into action, you will be on a path to financial control and freedom. As you get back on the right financial track, keep monitoring your progress. Also, make it a habit to reassess your finances and plans periodically as your life or the world changes.
Adults in midlife and after have an unprecedented opportunity to live the life they truly want. Jump in the driver’s seat and enjoy the ride!
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