6 Action Steps to Take When You Feel Financially Vulnerable

by Tracy · 11 comments

A report released last week gave the shocking news that half of all Americans are financially fragile and would not be able to come up with $2,000 in 30 days without having to resort to borrowing money or pawning/selling items that they own. It’s apparent that it’s not just the poorest families that are financially vulnerable, many middle class families are also in the same boat.

Ask yourself how easy would it be for you to come up with $2,000 to pay for a necessary car repair, vet bill or home repair. Would you be able to take it from a savings account or would you have to put it on a credit card or borrow it from family? If it’s the latter, it’s time to take action. Here’s how:

1. Don’t beat yourself up. While there are plenty of people out there who can be harshly judgmental, there’s not much to gain by playing the blame game. Do take responsibility for your situation, but don’t waste time and energy by dwelling on your mistakes. Shame will demotivate you faster than anything – focus on what you can learn from your mistakes and what you can do to fix the problem instead.
2. If you don’t already have a budget, now is the time to start. You need to get in control of where your money is going, as soon as possible so that you can get yourself on firmer financial ground. A few things to remember to make a successful budget:

  • Be sure to account for all of your expenses, including ones that only come up once a year or so, like car registration fees and holiday gifts.
  • As you write your budget, look for expenses you can trim or eliminate altogether. Even if you’ve been paying for them up to now, remember that you are financially vulnerable. This is a serious situation and calls for some cutting back until you’ve got things under control.
  • However, do allow yourself an allowance of money to spend on miscellaneous personal expenses to keep this plan sustainable in the long run. This doesn’t have to be a huge amount, many people do just fine on having $20 a week to blow on anything they wish.

3. Savings come first. Every time you are paid, the first thing you should do is pull out the amount you have budgeted for savings and put it in a high yield savings account. If you can automate this through your payroll department or bank, so much the better.
Remember: Savings is not a nice to have extra, it’s a crucial part of being financially healthy. Treat it as a top priority!
4. Look for ways to beef up your savings immediately, such as:

  • Selling things you no longer need at a yard sale, eBay or Craigslist
  • Looking for side jobs to earn extra money
  • Go on a week-long spending diet

Even earning an extra $100 makes a big difference, just be sure to sock it away in savings right away instead of frittering it away.
5. Take a hard, realistic look at your situation. Is it truly tenable in the long run? Can you really afford the house you are in or the car you drive? Do you simply not make enough money to afford a decent, modest lifestyle in the area where you live?
If your financial situation simply doesn’t work, you have to take action, even if it will mean major changes in your lifestyle. It’s easy to put your head in the sand and keep juggling, but one day you’ll have to come to terms with the problem. Better to do it now so that it’s on your terms and you have more control rather than waiting until it all turns into a big, ugly mess. Here’s how to start:

  • Ask yourself what needs to happen for your financial situation to be sustainable in the long run. Do you need to spend less on housing or transportation? Find a career that pays a livable wage? Put your children in public school? Get help for a spending problem?
  • Find out all your options, even the not so attractive ones like letting your home go into foreclosure or moving from the area where you’ve lived your entire life. Researching the options doesn’t mean that you have to take them, but you owe it to yourself to learn all the possibilities.
  • Once you know the options, do a careful comparison to decide on one that makes the most sense for you and your situation. Do get advice, but make sure you take into consideration the advisor’s experience and biases.
  • Now that you know what to do, start taking action in a positive way. It will be tough, but instead of focusing on what you are losing, keep your mind on what you’ll be gaining by making these changes. Look for the positives and refuse to dwell on the negatives.

6. Don’t rest on your laurels. Once you’ve saved that first two thousand dollars, be proud of yourself but do continue to make living below your means a habit instead of a short term solution. A frugal lifestyle has many benefits including:

  • Keeps you focused on what’s important instead of material things.
  • Makes it easier for you to weather financial emergencies as your fixed expenses are lower and you are used to living with less.
  • Usually more environmentally friendly.

Are you financially vulnerable? What steps are you taking to remedy this? If you’ve been financially vulnerable in the past, how did you get on more solid footing?

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{ 11 comments… read them below or add one }

Kassandra Hart May 30, 2011 at 8:36 am

That statistic is frightening on it’s own, but coupled with a bad economy and $4+/gal gasoline and it’s difficult to believe the “experts” that the recession is over. It’s solid proof that the majority of Americans are barely treading water.

Another great article, Tracy.

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Adam May 30, 2011 at 11:01 am

This report is a painful reality check, and unfortunately going to get worse before it gets better. The majority are over extended as individuals, as is the federal, state and local governments.

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Ginger May 30, 2011 at 11:13 am

Kassandra, I agree, I do not think the recession is over at all. Prices are going up yet income is not. I think we are in for a time of stagflation. I am learning all I can, about being frugal, growing my own food and cooking. I try to keeping cut down on my expenses, just so I can keep my head above water. However, I know that at some point wages will increase and if I can keep learning how to be frugal sooner or later there will be a big gap between my wage and my spending.

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Bankruptcy Ben May 30, 2011 at 6:43 pm

There’s some peer reviewed science around this. Apparently there are 4 behavious people with low financial stress have. Financial stress is a present in both poor and “rich” families. Acording to the study “Financial behaviours of consumers in credit counselling”, Jing Jian Xiao, Benoit Sorhaindo, E. Thomas Garman. The following are associated with low financial stres
1. “make plans on how to use their money”
2. “write down how money is spent”
3. “evaluate their spending on a regular basis”
4. “Use a written budget”

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shakylegs December 24, 2011 at 11:45 pm

I happen to use exactly the same four procedures listed by Ben. I would like to make a couple of additions:
5. Separate “want” from “need”
6. Make a daily game of frugality to beat the system.

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marci May 31, 2011 at 11:56 am

But how many of these same people, who will not bother to even TRY to save for an emergency fund, have cable TV, premium channels, a fancy cell phone or even a regular cell phone, cigarettes, booze, Wi’s or other electronic games, throw clothes away and buy new rather than mend them, have space but are too lazy to plant a garden, and blow money like there is no tomorrow. So many have this feeling that the gov’t will take care of them, so why should they bother to take care of themselves…. urrrgghh…

Home prices are on the way back up in our area, jobs are listed, there is work to be had…. I think the recession is over here. There will still be minor adjustments, but those who refuse to buckle down and get serious about taking care of themselves will still be in a world of hurt, recession or not. They can’t just keep overspending like there is no tomorrow.

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Mike June 2, 2011 at 9:09 am

Where is your area? Just curious where home prices are going back up.

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Don Brown June 1, 2011 at 10:22 pm

I would like to add buying products that are certain to meet your needs. Look in your trash and in your cupboards count how many products that were new and enticing but did not live up to the hype.

Get back to basics during these tough times. For 45 years EDFRED Corp always stuck to the those essentials and it has served our customers and us very well.

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Witty Artist July 18, 2011 at 8:59 am

You shoot a rabbit in the squat with this nice article! :) I have to admit I’m still pretty vulnerable in point of view of the finances. As you’ve mentioned, the first step was also the hardest: assuming responsibility for my situation, learning from mistake and begin to search for solution and think positively. It’s hard to start saving money, and I’m tempted many times to dig into it. On the other hand, when your savings account begins to grow, you get a feeling of safety.

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Ron August 2, 2013 at 9:14 pm

Nowadays (2 years after the article was written), you can download your checking account and credit card activity and use that to know exactly what you’re spending your money on.

Also, we’ve stopped using cash for much small spending and now use a debit card, since it allows for finer control of where the money went instead of just cash withdrawals from an ATM.

After doing the first two, I make a spreadsheet before every month which indicates when known bills are due, when and how much we get paid, and weekly allocations for “pin money”, groceries and gasoline. If exact amounts aren’t know, I estimate based on past history.

This has served us well in rapidly driving down our debt while allowing us to save for tuition.

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shakylegs December 2, 2013 at 9:43 am

I have checked out a number of “do-it-yourself” type of blog sites – both free and for cost. I have choson the free Google blog site maker – Google Sites. There are a number of templates available – just fill in your info on the template and it’s done. Good Luck

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