5 WAYS TO SOLIDIFY YOUR FAMILY’S FINANCES
Author: Patrick Blair
The prudent see danger and take refuge, but the simple keep going and pay the penalty.
Humility is the fear of the Lord; its wages are riches and honor and life. - Proverbs 22:3-4 (NIV)
In my book Faith & Finances, I paint an unstable and treacherous picture of the current economic environment. Sooner or later, the ups and downs of the economy will test the strength of your family’s finances. While you cannot prepare for every outcome, you can be prudent and take steps to solidify your family’s finances.
It’s critical to your family’s well-being, that you don’t get financially overextended. With home mortgages, auto loans, school debt, and other debt, it’s easy to get into a situation where your family cannot service those debts. It’s always a good idea to reduce uncertainty and increase cash flow. It takes humility to cut back and make needed financial changes, but your family’s well-being is worth it.
Here are 5 ways you can solidify your family’s finances:
1) Refinance to a fixed-rate mortgage. Mortgage rates have risen dramatically over the last year. If you have an adjustable-rate mortgage (a.k.a. ARM loan), you’ve likely seen your payments rise significantly. If interest rates continue to rise, ARM loan debtors could really suffer. Consider refinancing to a fixed-rate mortgage, which would give you a set payment amount over the life of the loan. Generally speaking, ARM loans are a risky option.
2) Sell valuable, unused items. You might have a boat, jet ski, RV, motorcycle, or extra car that is just collecting dust. Consider selling that unused or little-used item for some cold hard cash. Put that cash to work by paying down debt, investing it, or adding it to your emergency fund. Vacation homes and other assets might also be worth selling now. In financial downturns, these items tend to quickly lose their value.
3) Consolidate debt (so that your payments are lower). If you have debt, consider consolidating it if it can lower your monthly payment obligation. In hard times, having a lower monthly payment obligation can be especially helpful. Remember, for most loans, you can always pay extra if desired. Don’t get a loan that has prepayment penalties and be wary of loans requiring collateral.
If you have good credit, you can often consolidate debt and lower your interest payments at the same time. This is a double-bonus. Shop around to find the most competitive debt consolidation loans.
4) Diversify your assets. Diversification is just a fancy way of saying: "Don't put all your eggs in one basket." It's just plain common sense. Many of you have almost all your money in a 401k/IRA and/or home. This works well until the economy takes a downturn, which it always eventually does. Consider diversifying into other asset classes. See Section III of my book for a detailed explanation of diversification and specific diversification ideas.
5) Build up an emergency fund. This is one of the hardest things to do, because it’s difficult to avoid spending loose cash. Yet, it is one of the most important things you can do to ensure you have the immediate resources to protect against emergencies. Most experts recommend having anywhere from 3 to 12 months’ worth of your family’s expenses saved. While it may take years to save an emergency fund, the savings and discipline it creates is well worth the effort.
There are many other ways to solidify your family’s finances discussed in my book Faith and Finances. Please see www.faith-finances.com for more blog articles.