Since my wife’s contract unexpectedly ended last March, I feel like we’ve been doing a pretty good job of keeping up with all our bills. Although we certainly have made some cutbacks, and I’ve taken on extra work, it hasn’t been completely easy. It’s been difficult and stressful, but somehow we’ve managed to muddle through.
Recently, we got some incredibly good news. My wife landed a part-time contract as a paralegal. This is a wonderful development not only because we need the money, but because it supports our goal of diversifying our income streams.
Of course with every silver lining, there is an ugly cloud. During the past month, we’ve had several emergencies come up, and my wife’s new gig won’t bring in any significant income until August. As a result, we are now facing a small financial crisis brought on by the following unexpected expenses:
- Two trips to the Emergency Room.
- Our recently-adopted daughter needing psychological counseling services not covered by her adoption assistance agreement.
- One of our pets suddenly dying from a possibly-contagious disease.
All the bills haven’t arrived yet but we are figuring we will have at least $1,000 of additional expenses that will have to be paid during the month of July. Fortunately, at least some of the ER visits will be covered by our health insurance. The counseling, pet necropsy and cremation will have to be paid out-of-pocket.
We are fortunate in that my wife’s period of unemployment hasn’t completely eaten through our emergency fund. However, this emergency marks the death of our emergency fund, and we’ll have to make difficult financial choices if another arises in the near future.
Since our luck hasn’t been the greatest this past year, my wife and I sat down and had a discussion about our priorities if another financial crisis should arise. We had a long talk about who we will pay (and not pay) if our situation doesn’t improve.
Here’s our list of priorities:
- Mortgage. Although our mortgage is our largest monthly expense, we view it as our highest priority because we cannot run the risk of becoming homeless. Not only do we have a family to care for, we also have a business that is run out of a home office. Without housing, our ability to care for our child and run our business is seriously diminished.
- Groceries. Going hungry isn’t an option. We need fuel for our bodies so that we can work and our daughter can study.
- Utilities. Having a home-based business means that the lights need to stay on. We can’t run our business without electricity, and the water and sewer services need to stay connected as a matter of sanitation.
- Health Insurance. Given that my wife and I aren’t getting any younger and we’ve both required surgeries over the past decade, we feel going without health insurance isn’t a risk we want to take.
- Non-Discretionary Expenses. Although non-discretionary expenses, such as insurance premiums, automobile registration and tax payments must be paid eventually, they can sometimes be paid late.
- Debt Service. Last on our list are payments towards debt service such as our auto loan and any credit card debt. Although staying current on these things is important because failure to pay could result in ruined credit or an automobile repossession, we view these debts as our lowest priority because we have other, paid-for, automobiles, and we know from experience that bad credit makes your life difficult, but not impossible.
If you are facing your own financial crisis and need to prioritize your expenses, it’s likely that your list of priorities may be different. Here are some things you’ll want to keep in mind as you make your list:
- How important is a particular expense? Obviously, keeping yourself housed, clothed and fed should be near the top of your priority list. Other things, like insurance payments or debt service, might not be as important.
- How much will failure to pay hurt you? If you are stuck choosing between creditors, pay first the ones who can hurt you the most. Failing to pay your landlord or auto loan could result in an eviction or repossession. Ignoring your credit card will result in late fees and a bad mark on your credit report. Which is worse?
- Will a late fee buy you time? Some vendors, especially utility companies, aren’t usually inclined to disconnect service or report you to the credit bureaus when your account first goes delinquent. If you expect your financial crisis will be short-lived, sometimes skipping a bill and paying the late fee can give you some badly-needed breathing room.
Next in series: Celebrating During Crisis
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