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How Families Deal with Financial Emergencies

How Families Deal with Financial Emergencies

There’s a lot to be learned from the way individuals and couples handle financial challenges. That’s because the nuclear family operates much like a small business. Businesses and families, for example, both have to deal with questions of inventory, financial planning, security, insurance, and similar challenges. Moms and dads buy groceries, plan for college expenses, make sure the home is safe from fires and intrusion, and maintain multiple kinds of insurance.

For businesses, the inventory has more to do with products than groceries, financial planning usually involves larger amounts of money, security expenses tend to be higher, and insurance costs are also much higher than for a typical family. What’s to be learned from the comparison? Parents can often access the same kinds of monetary assistance that an average-size business can. Here are some effective strategies that heads of households employ to handle financial emergencies.

Savings

The first line of defense against money shortfalls is a savings account. Some families maintain a specific type of account known as an emergency fund. These funds typically hold about three months’ worth of income and are designed to fill in monetary deficits that arise from factors like medical bills, vehicle repair, and other non-routine expenses.

IRAs

When financial hardship strikes, IRS rules on taking money out of an IRA can be waived. It’s important to be able to document the hardship and apply for a waiver before withdrawing funds from an IRA. If you follow the rules and qualify for the hardship exemption, leveraging your built-up balance in an IRA can be a smart, fast way to overcome a lack of funds.

Payday Loans

Payday loans are an ideal way to get through a money crunch without having to deplete savings, break IRAs, or take out home equity loans. The key advantage to a payday loan is its versatility. Borrowers need only show proof of steady income in order to access nearly the full amount of a typical paycheck. When you repay the loan in a timely fashion, interest rates are competitive and terms are reasonable. Many turn to ThinkSaveRetire.com to review online payday loans when they face short-term shortages of funds.

Social Services

If times are really tough due to a job loss, death of a primary earner, natural disaster, or serious medical issue, some families look to the vast network of social services from federal, state, and local governments. Charitable organizations also help many who face financial ruin. When the chips are down, these private and governmental entities put food on the table and provide essential shelter for families who need help.

Home Equity Loans

For homeowners, equity loans are often the way out of a temporary money shortfall. As long as you have been in your house for a few years and have built up some equity in it, you can usually leverage at least a percentage of your ownership in the structure. Terms vary widely from lender to lender, but many homeowners rely on their homes as a sort of physical type of savings account. Renters, however, are out of luck when it comes to this kind of assistance.

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