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In A Spot Of Financial Bother? Some Advice

Financial worries are a source of misery for millions of people across the world.  As such, this is going to be a rather serious post discussing what to do if you find yourself in various financial predicaments.

Debt

In the West, more and more of us are falling into the trap of debt, especially since the financial crash of 2008. Although we’re told that the economy is on the road to economic recovery, from a personal point of view it still doesn’t feel that way. In the US, 9 percent of people report either having too much debt or not enough income to pay their debts off. After the crash, overall personal debt fell slightly. But with wages stagnant and increasing living costs, more people than ever are falling into debt.

However, there are some things that you can do to help get out of a debt spiral.

The first thing to do is look honestly at your expenses. Work out exactly how much you’re spending on the essentials, like bills. Make a list totalling your current costs of living including rent or mortgage, utilities and food.

Scrabble Series Debt
Image credit: StockMonkeys.com – www.stockmonkeys.com

Now go through that list and ask yourself whether any of those individual items is costing you more than it should. Perhaps you could save money on your electricity and gas bills by switching providers. Perhaps you could save money on your car insurance by telling your insurance company that you’ve seen a better deal elsewhere. Maybe your phone bill can be lowered by going with a new contract.

The next step is to ask whether you can cut back on any of your non-essential spending. Again, grab your bank statements and a calculator and create a total of all your non-essential spending. Then put your spending into various categories. What are you spending on pets, for instance? Or, what are you spending on entertainment?

Often you’ll find that you’re actually spending a lot more than you realise. That Starbucks coffee you get every morning before work might be costing you as much as two-days wages every month.

Once you’ve found out exactly how much you’re spending and what you can save, you can compare this to your debt repayments.

What you’ll usually find is that if you’re willing to tighten your belt, you can actually deal with debt repayments and get back into the black. But there are still times when the debt mountain is too high, so that even when you cut back on all your expenditure, you still can’t make repayments.

In these situations, it’s probably a good idea to consider bankruptcy to clear the debt and to keep creditors off your back. If you file for bankruptcy, it’s best to get some independent legal advice. That’s because it entails a lot more than simply clearing your debts. Your credit score may be permanently affected and you risk never being able to rent, take out a mortgage or start your own business.

It’s the lingering effect of bankruptcy on your personal financial freedom that means it should only be considered as a last resort.

Lack Of Savings

Piggy Bank With Coins Around
Image credit: www.seniorplanning.org

One of the tragedies of the low-interest rates central banks have forced on us for the last twenty years has been a collapse in savings. In other words, we’ve all been incentivised to gobble up all our resources now, rather than doing the prudent thing and waiting. This has meant an explosion in credit and an explosion in personal debt like no other time in history.

The madness really came to a head back in the mid-2000s when the savings rate in the US actually went negative for the first time in history. Americans were borrowing from overseas to finance everything from sports cars to holidays.

Now, though, reality is slowly returning, although savings remain low thanks to low-interest rates. Many Americans see a lack of savings as one of their most pressing financial problems.

So what can be done in these turbulent and crazy times? Well, one thing that a lot of people are now doing to try to get some sort of return on their money is to invest it in the stock market. At the moment, the stock market is flying high, but it’s not clear that it will continue to do so, and many analysts see it’s current value as a bubble.

The alternative is to invest in commodities themselves. However, because of a lack of demand from emerging economies, the current prices of commodities are stagnant.

That leaves just a couple of options. One is to continue to invest in property. But again, this does not seem like a safe long term investment because the prices of houses now exceed the level they did before the 2008 crash. And the fundamentals would appear to suggest that in that time, not much has changed.

The other option is to buy bullion. Bullion benefits from the fact that it has already been in a bear market for something like 5 years and that it is slowly starting to recover. Bullion might be a good investment because it is neither in a bubble nor is it likely to see further erosion of its value. And given how well it performed in the run up to the financial crisis, it seems like it has the potential to be a high-performing investment once more.

Bail

Every year millions of people in the US are arrested and then released on bail. However, making the bail payments can be costly, even under the best of circumstances. If you have been arrested and have been released on bail, what should you do?

One thing you can do is go to an expert in the matter who can advise on how to navigate the bail process.  See A-1 Bonding for details.

Bail Bonds.jpg
By Daniel SchwenOwn work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=4848420

You also want to make sure that any bail bonding company that you deal with has a good reputation. If you’re handing over collateral to a bail bonding company you want to make sure that the outfit is legitimate. If you do find that there is a warrant out there for your arrest, spend a bit of time looking for who the trusted people are in your area. If you are arrested and sent to jail, phone a friend or relative and tell them who you think would be a good bail bondsman.

Controlling Spending

Many people find it difficult to control their spending. And this can lead them into all sorts of other problems, including those discussed above. However, I thought that the issue was worth discussing in its own section because it is a fundamentally separate issue. Having too few savings or too much debt are often both underlined by an inability to defer gratification.

What do I mean by this? People whostruggle to control their spending often don’t have the ability to push something that they really want today into the future. Doing so is almost unbearable.

Often this is because spending too much is like a form of self-medication. It’s something that makes them feel a little more normal by taking away some of the pain. Obviously, discussing where this pain comes from and what to do about it is beyond the scope of this post. But if you are noticing a pattern of spending as a way to make yourself feel better, seek immediate professional advice. Spending too much money can lead to debt and make a bad situation far worse.

College Expenses

The number one problem for young people these days is the colossal cost of education. Thanks to cheap loans financed through government debt, colleges have been able to put the price of education up. But this has meant that the price of going to college has reached unsustainable levels. Just to get a degree to get a job now means that young people are saddled with enormous amounts of debt they may never be able to pay off.

This seems a little unfair. It’s almost as if the system was designed to saddle young people with as much debt as possible. I think that the debt situation is now so out of control that it might not be worth going to university at all. Thanks to the fact that so many people go to university these days, the value of a degree has been substantially diluted. Add to this the fact that many of the degrees awarded are irrelevant for businesses, and the reasons for going to university are melting away.

If you haven’t committed to an expensive university degree, but still want a career, there are options. You can enrol on a professional training programme in something directly relevant to what you want to do. Or you could start your career early, and get a head start on the graduates.

If you are already at university, you might consider taking a Saturday job. Working one day per week will probably be enough money to cover your living expenses and take the edge of any of the debt that you accrue.

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