Cash crisis requires that you act diligently to emerge out of it

Borrower demand in Asia has increased (Image credit: aenri05/Flickr)

Have you just been blindsided by an unexpected cash crisis and don’t know what to do? Whether it’s a job loss, medical expenses, or an emergency home repair, an unexpected change in your financial situation can be incredibly stressful. The bills still need to be paid, the utilities need to stay on, and you need to put food on the table, so how should you cope with a cash crisis?

By: Phoenix Lee/

cash crisis
Image credit: aenri05/Flickr

Evaluate the Cash Crisis

Take a moment to sit down and carefully evaluate your cash problems. Running around in a panic won’t solve anything and only lead to additional stress. Understandably, you probably have a million things running through your head and being cool and collected is the last thing on your mind, but the ability to carefully evaluate your situation will ensure you make the right choices.

First, determine what caused these cash crisis. Before you can look at ways to resolve the situation, you need to understand the cause. Is it a sudden loss of income? Mounting expenses that you can’t keep up with? While each situation can lead to similar burdens, your plan of attack will likely need to address the root of the problem to be effective in the long run.

Prioritise Expenses
Not all expenses are created equal. There are certain bills that need to be paid before others. Some of the most important items to put at the top of your list should be food and shelter. Is it worth risking foreclosure to keep your cable bill current? Obviously not, so carefully examine all of your expenses and determine which are the most important. It isn’t worth paying something that will put you in jeopardy of being unable to pay for a necessity.

Once you’ve established which bills are the most important, you can begin looking for expenses to cut out of your budget. While it might not be much fun to cut out some of the things you’re used to, it might be what’s necessary to keep you from slipping into an even deeper financial hole.

Look for ways to cut back or eliminate things completely. For example, if you regularly go out to eat, consider cutting back or eating at home entirely. It doesn’t take much. If you were to only find five different ways to save $20 each month, you’ve instantly freed up $100 that can go towards your important and necessary expenses.

Negotiate With Lenders
If you’re having trouble with credit cards, medical bills, or even your mortgage, the first thing you should do is call your lender. Believe it or not, it’s in their best interest to help you make your payments, even if it means a lower interest rate or extending the terms. People so often wait until they already get severely delinquent before contacting their lenders, and by then they aren’t as willing to work with you. If you know that money is getting tight and you might need help, call them before you get behind.

Calling your credit card company can result in a lower interest rate, and in some cases may even lead to a temporary delay in making payments. Reaching out to your mortgage company can lead to a restructuring of your loan. And even when it comes to your utilities like electricity and gas, they usually offer programs to help keep the lights on and make payments affordable if you’re experiencing a hardship. Don’t wait for the threatening letters to start coming in the mail before taking action.

When Facing Cash Crisis, Find Extra Money
Ideally, you want to have some money set aside in an emergency fund to help pay for any unexpected expenses, but this isn’t always possible. Where do you turn when you’ve exhausted your savings account?

You can always try to get a loan or use credit cards, but these may only make the problem worse. While borrowing money can provide quick access to cash, it can also come with high interest rates and a new monthly payment. If you’re experiencing a financial hardship for an extended period of time, you may find yourself in a downward spiral that is nearly impossible to recover from.

Another option could be to check with friends and family. Nobody likes to ask for money, but a little bit of help from a loved one might be all that you need to get through the rough patch. Of course, this can also put a strain on some relationships, so proceed with caution.

And finally, you may have some money available via investments or in retirement accounts. Generally speaking, withdrawing money from your retirement accounts is a bad idea as it can put your retirement security in jeopardy, but it could also be enough to keep you from going into even further financial trouble.

Take Advantage of Available Assistance
When it comes to a financial hardship, there may be assistance out there for you. From Comcare Childcare Subsidies to the various Financial Assistance Schemes, there are several Government run programmes to assist you. It is best to approach your nearest social service centres if you need help.

Planning for the Next Cash Shortage
If you’ve made it through difficult times in the past and want to minimise the impact in the future, there are a few things you can do to prepare. Start with an emergency fund. This is exactly why they are called emergency funds. A good rule of thumb is to have a few months worth of expenses set aside in the bank to help pay for unexpected expenses or pay the bills if you lose your job. Obviously, the more you have saved, the better off you’ll be. But even a month or two worth of expenses saved up can buy you some time while you get things back on track.

You also want to consider insurance. Most forms of insurance are a safety net to cover expenses. Having a plan in place before a financial crisis strikes will take a lot of weight off of your shoulders. Knowing what expenses you have and how you’ll pay for them will make a stressful situation that much easier to cope with.

Written by Ravi Chandran

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