Preparing for financial disaster

Most of us know that we should establish an emergency fund, and with the current state of the economy, preparing for financial disaster is more important than ever. However, having money set aside is only one of the steps we need to take; it's also important to have a plan ready when hardship strikes. Even if you have a fund ready, events can leave you in a bad position. To fully prepare for financial upheaval, you'll also need to make some lifestyle changes, which we'll go over in more detail here.

*First, determine where you can cut expenses. Evaluate your monthly bills and figure out which you can live without. For instance- do you really need 200 cable channels or a week at the beach each summer? Everyone's list will be a little different, but the main thing is to think of ways to trim expenses before disaster affects you. This can be as simple as not eating as many restaurant meals, or it can be as self-sacrificing as selling your car and buying a less-expensive model, or taking public transportation.

*If the disaster lasts sufficiently long, or it's large, you can consider selling your home and renting a place to live. However, this strategy will only work if your home can be sold for more than you owe on the mortgage- hard to do, considering the way the housing market is these days. Look at all your possessions, and decide what you can afford to part with.

*Consider refinancing your debt. If you cannot sell your home, then getting a home loan refinance might be the best thing. Before you do this, make sure that the new loan's terms will reduce the amount you pay. If you have outstanding student loans, consolidation may be an option. The average student graduates with many thousands of dollars in loan debt, and consolidating or refinancing can save hundreds every month. It's also helpful to see if any of your current credit cards offer lower-interest balance transfers.

*Look for ways to earn extra money, as it can be key in surviving a financial disaster. Don't be afraid to take a lower-wage job- stocking shelves, delivering food, or consulting work may not be glamorous, but it pays the bills. You can also take some of your hobbies and convert them into a business opportunity. What's better than getting paid to do what you love? Take a look around your neighborhood and see if there are any money-making opportunities, or look for extra hours at work.

It's imperative that everyone is prepared for financial disaster, and we can do just that by trimming expenses, relocating, refinancing or consolidating outstanding debt, and searching for ways to supplement income. If your financial situation isn't perfect, then you should take steps immediately to fix it, and be better prepared for the next financial catastrophe.