This is the second in a series of articles designed to help you empower your finances and take charge of your fiscal well-being.
Part of being financially empowered is feeling secure enough in your financial situation that you don’t let money stress wear you down and you don’t let fear of the unknown hold you back from making wise fiscal decisions. Something that everyone should do, no matter your money situation, is identify your worst-case scenarios when it comes to your finances. If things went down the bumpiest financial road possible, where would you find yourself?
Many times, these are the reasons we avoid doing something a little bolder with our finances, like beginning to invest or getting a loan, which would actually be a positive decision for our monetary well-being. If you can identify your fears, you can begin to decide whether they are rational or overblown.
Let’s take a very common example that became a bigger fear with the crash of the housing market several years ago: the fear of losing your home. This is more of a concern for those who are considering taking out a home equity loan because the borrower’s house is used as collateral. If something were to happen to their income, like losing their job, wouldn’t the lender take their home away?
In this situation, there are a lot of “what if’s” that need to be examined. If you’re considering a home equity loan, what are you planning to do with the funds? Will you be paying off other loans, like credit cards, and consolidating your debt? Will you be adding an addition to your home that will increase its market value for a higher selling point later on? There’s also the question of why you would fear for your source of income; does the stability of your job seem to be up in the air?
Taking these pieces apart, it’s not hard to see that someone with a stable job and who hasn’t had trouble paying bills on time shouldn’t be afraid of losing their home. On the other hand, if you aren’t sure about the permanence of your employment, perhaps evaluating your need for a loan isn’t such a bad idea.
Having these worst-case scenarios on hand is also good when you talk to a member service representative about moving forward with your finances. If you can explain what you’re afraid of, they’ll be more able to point you in the best possible direction for your situation.
What are your worst-case scenarios? Let us know in the comments below!