The Single Most Important Thing To Do In A Financial Crisis


It can happen at any moment. A bad storm uproots an otherwise healthy tree and it falls on the house. Your daughter is in a serious bike accident. You get laid off just days after closing on your house. A financial crisis can strike completely without warning. Hopefully you have an emergency fund to help mitigate some of the expense, but whether you’re prepared or not, a financial crisis can be stressful at best, and terrifying at worst.

When a financial emergency happens, here’s the single most important thing you can do get your feet under you.

Stop and Breathe

Emergencies typically demand a swift response — otherwise they wouldn’t be emergencies, right? Unfortunately, the sudden shock that comes with a big upheaval of your normal routine can push you into making brash decisions, like paying for roof repairs with a high-interest credit card when you might have other options. There are few emergencies so dire that you don’t have five minutes to clear your head. Here’s how:

  • Close your eyes.
  • Take a very slow, very deep breath.
  • Clear your mind.
  • Release that breath.
  • Open your eyes.
  • Approach the problem with new clarity.

Here’s why it works. In an emergency, everything accelerates. Your pulse quickens, your blood pressure increases, your breathing speeds up, your body releases adrenaline and other chemicals, because the very same fear and the sense of danger that you feel in a financial emergency is the same reaction your body developed to deal with getting chased by saber-toothed tigers. Fight or flight. Your body is prepping you to make split-second decisions that it thinks will mitigate the danger and get you into a place of safety as absolutely fast as possible.

Of course, most financial emergencies don’t involve getting mauled by wild animals, and in most cases, split-second decision making doesn’t result in a better solution than a slower, more logical approach. In some cases, making a decision too quickly can actually make the situation worse!

By forcing yourself to stop and breathe, you interrupt the body’s instinctual reactions and let the part of your brain that deals with critical thinking and problem solving to catch up. It gives you a few seconds to collect yourself, so you can approach the problem with all of your mental resources instead of just the instinctual ones.

Explore All Your Options

In any financial crisis, you probably have more than one option to solve it. Examine each of those options, and try to prioritize them such that you try your best options are the ones you try first. What’s a best option? Anything that lets you get out of the financial crisis using assets you already own, rather than things you have to borrow. You want to avoid solving a crisis right now in a way that causes more hardship for you later, if you can help it. Here are some options to explore, and a possible way to prioritize them:

  1. Do you have an emergency fund that will help you cover some or all of the costs of this crisis?
  2. If not, do you own any assets like rental properties or stock that could be quickly sold to cover the costs?
  3. If you don’t have salable assets, would your employer be willing to give you an advance on your next paycheck?
  4. Can you work out an income-based payment plan with the companies involved?
  5. If none of those work, do you have the ability to borrow money to deal with this crisis? Do you have the means to pay back such a loan?
  6. If so, are you making sure you’re making the best borrowing decision, by exploring various loan and credit options and picking the one with the lowest interest and least amount of fees?

Have you ever had to deal with a big financial crisis? How did you do it? Tell us in the comments!

Photo by Shawn Rossi

Posted in The Emotions of Money