If you have ever lost your job or your source of income for more than a few weeks, you’re probably aware of how quickly your way of life can be put into jeopardy. For the three in four Americans who live paycheck to paycheck, an interruption of income can not only wreak havoc on day-to-day costs such as groceries and utilities, but it can severely impact their ability to continue owning their own homes as well.
Think about it: if you lost your job or became disabled tomorrow, would you be able to continue making your mortgage payments, utility payments, vehicle payments and cover groceries, toiletries and clothing costs successfully? Would you be able to keep your gas tank full to run errands? Would you be able to pay for Junior’s Boy Scout tuition or your daughter’s volleyball uniforms? For many people, the answer is simply no. In fact, for most people, Boy Scout membership fees and sports uniforms are so far down the line that they aren’t even conceivable should a financial catastrophe occur.
So how do you assure that your way of life isn’t jeopardized by job loss, an injury or downsizing? You protect your way of living by preparing for hard times before they occur–not after.
What Should I Have in Reserve?
An emergency cash reserve fund is a critical part to living securely. For most people, the idea of having a cash reserve fund is somewhat of a pipe dream. After all, the true safe amount to have in the fund is six full months of living expenses, including everything from mortgage payments to car payments to insurance costs, utilities and food. For some families, this means they need a minimum of $20,000 in a cash reserve fund; and for many families, that number can reach $40,000 or more. That’s a lot of cash to acquire at once, so it’s no wonder why many people consider that reserve to be an impossibility.
Naturally, when starting an emergency reserve fund from scratch, you start by preparing for one month of living expenses. For many people, this is a number that is much easier to digest. Even a month’s worth of expenses in your emergency cash reserve fund is far better than nothing at all, so there is no such thing as too small when it comes to securing your future.
Credit Cards: A Good Choice?
For many families, thinking of relying on credit cards when times get tough seems to be the only way out. After all, that $15,000 credit limit or $35 minimum monthly payment seems doable in the short term. Sure, they know it’s not ideal, but they’re doing the best they can with what they’ve got. Or are they?
Credit cards bring with them high interest rates–up to 25% APR in some cases. The average interest rate on consumer credit cards in America is 15%, which is still pretty daunting when you think about it. With that in mind, are credit cards really the security net American families need to prevent hardship in times of struggle? Or are they just a tool that will cause more struggle down the road and make it even harder for families to get back onto their feet after being knocked to the ground?
Consider this: if you lose your job tomorrow and use your credit card to keep you afloat, you will be paying back that debt over a long period of time. Obviously, the longer you’re out of work, the longer you’ll be paying it back. In fact, if you’re out of work for six months and ring up $15,000 in credit card debt during that time (which is a very conservative estimate based on very a meager cost of living), it’ll take you nearly 15 years to pay that back if you only make the minimum payments. Yikes!
Make more than the minimum payments and you’re off to a better start, but then you’ll feel the immediate pinch in the pocket book at a time you need the money most: when you’re trying to regain your financial footing. Is there a better way?
Mortgage Plays a Role
Many people think of their mortgage solely as a tool used to gain eventual home ownership status. However, it should be regarded as much more than that. Your mortgage is an investment, and it should be looked at in exactly that way.
With any investment comes the possibility of a return on it. Your equity is the return on the biggest investment most Americans will ever make. It’s the path that, when used correctly, can help lead you to financial freedom. It can also be used as an excellent and immediate emergency cash reserve fund which can be accessed without adding extra debt into your monthly payments.
In many cases, financial hardship forces families to resort to selling their homes to access their equity, however. This isn’t an efficient way of doing things. It forces the relocation of the family during a time when things are already stressful, and it increases urgency to sell the home, which may fetch less than it would have if the owners were able to have time on their side. A better option is to cash-out some of the equity in the home while the housing market and the owners’ financial status are healthy so that the equity can be liquefied and accessible in times of trouble. Liquidity is the most important part of the equation here. After all, wouldn’t you want to stay in your home when times got rough–and do it comfortably?
When utilized correctly, a cash-out refinance can not only give you the immediate access to an emergency cash reserve fund to keep your family safe and secure, but it can also lower your monthly payments and even help you to own your home faster as well. Interest rates on mortgages are at all time lows, so refinancing during this flourishing, healthy market is a great idea. It’s a win-win situation: you get your emergency cash reserve fund, you get the peace of mind of knowing you won’t have extra debt to pay off if the unthinkable happens, and at the same time, you can potentially leave more cash in your pocket each month and possibly pay off your home faster.
For more information on emergency cash reserve funds and how your equity can be used as your financial safe haven, contact one of NLC Loans’ personal mortgage advisors today by calling toll-free at 877-480-8050. There is no obligation whatsoever; simply ask for a free mortgage analysis and request information about emergency cash reserves. Our personal mortgage advisors will help you come up with a plan of attack that won’t leave you feeling the pinch in your pocket, but will still provide you with the peace of mind you need.