While many major events can result in unexpected expenses and lost wages, these issues do not have to jeopardize your financial future. Â Major life events can wreak havoc on your personal finances and that is why during ordinary times you should be building yourself a safety net. This net should ideally be six months to one year of living expenses. So if you typically average $3,000 per month in expenses (this includes rent/mortgage, food, gas, utilities, entertainment, everything) then you should have an emergency fund of at least $18,000! (6 x $3,000= $18,000) and preferably $36,000. If you don’t have at least the minimum you are at risk if one of the following events hits you.
Getting Divorced
Although some experts believe that the divorce rate is actually declining others say that it is approximately where it was 20 years ago with approximately 50% of marriages ending in divorce or permanent separation. Divorce is not only traumatic it is also expensive. As we said in Considering Divorce? Your Budget Will Take a Major Hit:
According to Marripedia divorce initially reduces your assets by about half, and is the primary cause for women applying for welfare. “Almost half of American families experience poverty following a divorce, and 75 percent of all women who apply for welfare benefits do so because of a disrupted marriage or a disrupted relationship in which they live with a male outside of marriage…Â
By the time you enter your 50’s your level of wealth has a strong correlation to weather you were divorced or not.
“The assets of married couples in their fifties (who are approaching retirement) are four times greater than those of their divorced peers. Even when the two divorced households’ assets on average are combined”
A few of the reasons for this major financial hit are:
- When you get divorced, you may be forced to relocate. (i.e. Housing costs for the couple double)
- Your total household income may change, and you may be solely responsible for some expenses that you were not previously responsible for.
- In addition, some of your expenses may even escalate for a period of time, and some funds may be held in escrow and unable to be accessed until after the divorce has been finalized.
- Lawyers cost money.
- Spouses spend money as a weapon to hurt the other party.
If you have a separate emergency fund (i.e. in only your name not your spouses) you will have options. Â You still may need to keep expenses to a bare minimum until your financial situation is sorted out.
Being Seriously Injured
A serious injury, such as from a workplace injury or a car accident, can affect your ability to earn a living, and it can also create expensive medical bills. While some of these accidents are blameless, others may be caused by intentional actions or negligence. In these cases, you need to maximize your settlement because as we all know medical expenses are ridiculously expensive and loss of the ability to work can be devastating. And that usually means getting professional legal help, without it the other party’s insurance company will have the upper hand. The law firm of Snyder & Wenner, P.C. says “Many people think of personal injury cases as involving a simple car accident with no dispute as to whom is at fault. They think there is a quick and easy formula that can be applied to every case that will determine how much the case is worth. The truth, however, is that taking this simplistic, shortcut to the case will only result in a smaller settlement or trial verdict for the case.”
In case of an injury a settlement may be a long time coming so even a 6 month safety net might not be enough due to paying for the medical bills and lost wages for the entire time that you are recovering.
Falling Ill
In addition to injury another way to rack up serious medical bills is to come down with some serious illness. This is one of the most common causes of financial stress. If you are young and healthy you might dismiss this as a possibility, everyone thinks it can’t happen to them, but almost everyone can think of someone from their High School or College that it did happen to. So it still pays to be prepared. You may have life insurance to pay for expenses after you pass away, but you may not have any simple solutions available for the present time. Hopefully you have health insurance to cover the medical expenses. Consider working for as long as possible, and set up an online fundraising campaign. You can also set up a neighborhood fundraiser or seek support from local charities and organizations. Another idea is to cash out your life insurance policy now so that you can have access to the cash value if any is present.
These are only a few of the major life events that can cause tremendous financial stress to you. If you are worried about your financial situation now, take the time to brainstorm all of the financial solutions available to you. If possible, seek advice from a lawyer to learn about any rights or options you may have. By taking these steps, you can more easily overcome your current challenges.
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