Common Causes for Financial Crisis

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Preparing yourself and your family for a financial crisis is a matter of knowing how to live on what you make and how to save for unexpected situations.

Financial crisis is a scary thought, but it seems to be something that many Australians are facing. A lot of us got comfortable living in an economy where everyone was spending money all of the time. It was easy to believe that times were great and spending freely was ok. What a lot of people did not realise is that spending was being done in large part on borrowed money. Now that the economy has gotten tough it is harder to pay those bills and nearly impossible to keep spending and not worry about financial ruin.

Contributions to financial crisis:

1. Spending more then you make. This is one of the easiest traps to fall into with your finances, but really one of the easiest to also avoid. All you have to do is try to save some of your money between each pay period. Really save it, live in a cash world where you pay all of your bills on time and still have a little bit to put into savings each month. If you can do that, even if you only save $50 a month, you are spending less then you make. At the end of the year you will be debt free and have $600 in the bank. It may mean that you can not buy everything you want all of the time, but sometimes not buying something is the best financial choice.

2. Losing your job. This is a really tough one because unemployment is a big issue here in Australia. Unemployment alone contributes to the financial crisis. To help ease the trauma of unemployment you should have at least three months salary in savings. If you think your job will be downsized or you will be laid off you can start cutting expenses immediately in preparation. When you think you will have trouble paying your bills contact your creditors and see if they can arrange a payment plan for you rather then just charging you late fees.

3. Getting a divorce. The cost of getting a divorce is high. But there are hidden costs far beyond paying for a lawyer. You will have to maintain your household on half the income you had previously. It is smart to plan a little for yourself, have some credit in your own name. Make sure that all assets are in both you and your spouses names and that all expenses are not in just your name. It is not about not trusting your spouse, just about protecting yourself from the worst case scenario.

4. Medical costs. If you are injured or unable to work you will be very stressed. To avoid excess costs make sure that all of your bills and insurance payments are correct. If you can not pay a bill work out a payment plan with your provider to avoid being sent to collections and incurring more fees.

There are some specific life events that can lead to financial crisis. If you understand them you can prepare for them if not avoid them all together.

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