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  • July 30, 2024
  • Posted by General Electric Credit Union
  • 4 read

Navigating Financial Tight Spots: Do’s and Don’ts

Despite an improving national economy, 65% of middle-class Americans are struggling financially.1 Finding yourself tight on money can be stressful, but making informed decisions can help you navigate through it more smoothly. Here are some essential do’s and don’ts to consider when managing your finances during tough times. 

What to do – and avoid – during financial tight spots 

1. Do: Prioritize your expenses

When money is tight, it’s crucial to differentiate between needs and wants. Prioritize essential expenses like rent or mortgage, utilities, groceries, and medications. Creating a detailed budget can help you track your spending and ensure that your most important bills are paid first. 

Make a list of all your expenses, categorize them, and identify areas where you can cut back. For example, dining out, subscription services, and non-essential shopping can often be reduced or eliminated temporarily.

2. Don’t: Ignore your debts

It might be tempting to put off paying your debts when you’re low on funds, but ignoring them can lead to bigger problems down the line. Contact your creditors to explain your situation; many companies offer hardship programs that can provide temporary relief such as reduced payments or interest rates.

Prioritize high-interest debts like credit cards to avoid ballooning balances. Even if you can only make minimum payments, it’s better than missing them entirely. This proactive approach can prevent your credit score from plummeting. To streamline debt pay off, you could even apply for a balance transfer and consolidate all of your balances onto one low-rate credit card. 

3. Do: Explore additional income sources

Increasing your income, even temporarily, can provide significant relief when you’re financially strained. Consider: 

  • A part-time job
  • Freelancing
  • Driving for a rideshare company or food delivery app
  • Donating plasma
  • Scrapping metal, such as soda cans

Additionally, look into any government assistance programs or community resources available to you, such as food banks or housing assistance.

4. Don’t: Take early withdrawals from your 401(k)

Tapping into your retirement savings might seem like a quick fix when you’re desperate for cash, but it can have long-term consequences. Early withdrawals from your 401(k) usually come with hefty penalties and taxes, which can significantly reduce the amount you receive. 

More importantly, you’ll lose out on the compound growth potential of that money, which can impact your financial security in retirement. Instead, consider other options like personal loans or borrowing from friends and family. 

  • The SECURE Act 2.0 introduced new hardship withdrawal rules for 401(k)s and other retirement accounts. Learn what they are to determine if your situation qualifies. 

5. Do: Focus on building an emergency fund

Even if it feels impossible, try to set aside a small amount of money regularly to build an emergency fund. Having a financial cushion can prevent you from spiraling into debt when unexpected expenses arise. Start with a goal of saving $500 to $1,000, and gradually work towards building three to six months’ worth of living expenses. 

This fund will provide a safety net and peace of mind, helping you manage future financial challenges more effectively. Look for ways to save, such as cutting back on discretionary spending or setting up automatic transfers to a separate savings account.

Managing your finances when money is tight requires careful planning and disciplined decision-making. By prioritizing essential expenses, addressing your debts, exploring additional income sources, avoiding early 401(k) withdrawals, and focusing on building an emergency fund, you can navigate through tough times more effectively. Remember, these challenges are often temporary, and making smart financial choices now can set you up for a more secure future.

General Electric Credit Union (GECU) offers a host of products and resources to help you get ahead when times are tough. These include: 

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