Many circumstances in life can derail even the best money management plans and leave us with less money than we need to meet monthly obligations. What can you do if you are in this situation? This course covers a five-step plan for handling a financial crisis and getting back on your feet:

• Step 1: Take Inventory of Income and Assets
• Step 2: Review Expenses
• Step 3: Take Inventory of Debt and Review Financial Position
• Step 4: Prioritize Bills and Communicate With Creditors
• Step 5: Rebuild Credit and Start Saving

Step 1: Take Inventory of Income and Assets

If your expenses exceed your income, you will not be able to gain control of your financial situation until you make changes. Start by recording all of your sources of income, including realistic expectations of income that you will be receiving soon.

Think about ways that you may be able to increase your income. Some suggestions:

• If you own your home and have a spare bedroom, rent it out. A good place to advertise is nearby college campuses.

• Get a part-time job or work overtime if it is available. Ask family members who are able to work but currently aren’t working to look for employment.

• If you regularly get a large tax refund, consider increasing the number of exemptions you claim on your federal W-4 form. This will increase your take-home pay. (However, be careful to not take so many exemptions that you have a large tax liability at the end of the year. It is a good idea to consult with a tax advisor or use the withholdings calculator on the IRS’s website, www.irs.gov, before making adjustments.)

• Make sure to apply for all benefits for which you may be eligible, such as unemployment insurance, food stamps, Social Security, or TANF (Temporary Assistance for Needy Families).

Next, record the value of all assets.

You may be weighing whether to liquidate some assets to pay for immediate expenses. That is certainly one option, but be aware that it may come at a cost. For example, withdrawing money from a retirement plan can result in taxes and penalties of up to 45% of the amount withdrawn. You are also leaving yourself less money for the future. Still, the consequences of liquidating assets may be reasonable when compared with the possibility of losing your home or car. The important thing is that you not make these decisions lightly. Consider consulting with a financial professional who can help you look objectively at your options.

Liquidation is not necessarily the only way to utilize assets. Some retirement plans and cash value life insurance policies let you borrow against their value. You do not have to pay penalties or taxes when you borrow against a retirement plan, as long as you do not default on the loan. If you own a home that has equity in it, you may be able to get money to pay the bills from a home equity line or loan or cash-out refinance. However, keep in mind that if you cannot afford the payments, you could lose your home.