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If You’re Struggling With Money, Read This

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Navigating a financial crisis can be overwhelming. How do you decide what expenses should be prioritized? Should you tap into your retirement accounts? What about asking friends or family for financial help? Should you apply for a payday loan?

The first step of creating your emergency plan is understanding your essential needs. “Traditionally, financial experts say, ‘Try to pay all your bills, pay them on time.’ And we just drill that into people’s heads until they lose their job,” says personal finance columnist Michelle Singletary. “When you don’t have enough income, you just pay for what you need, a roof over your head and food on a table.”

Her new book, What To Do With Your Money When Crisis Hits: A Survival Guide, is an emergency field guide for your money. It’s intended to help you tackle the issues you’d likely face in the event of a job or income loss, which many people experienced during the ongoing pandemic.

“There are plenty of great personal finance books out there,” says Singletary. “But when you’re in the middle of a crisis, when you’re trying to figure out what to pay, you’re not going to grab a book on retirement savings and read it, you know, 200 pages of that.”

In the book, Singletary also explains her approach to managing money like she’s in a perpetual recession. It’s not so much about living in fear but more about being prepared to face financial crises at all times. “I have to always be prepared for the worst and hope for the best,” she says.

Life Kit spoke with Singletary about her new book and advice on navigating financial crises. Highlights from our conversation are below, edited for brevity and clarity.

Jannese Torres-Rodriguez: One of the first places that people might turn to for financial support is friends and family. When is the right time to ask for a loan versus a financial gift?

Michelle Singletary: There is never a right time to ask for a loan. If you’re in a financial crisis, go to the people who love you and care for you and say, “I’ve lost my job. I don’t know when I can pay you back. I don’t want to make a promise that I’m going to break and hurt our relationship.” I think you, people will be surprised at the number of folks in their life that would be absolutely willing to help.

What is the best way to respond when someone asks you for financial help?

If you find yourself on this side of the conversation, relieve people of that need to pay you back. Whenever anybody approaches me, I say right away, “this is not a loan.” If I write them a check, I write on the memo line in capital letters, NOT A LOAN. Just as a reminder to them that it’s OK that you came to me. I had the resources. I wouldn’t give you what I can’t afford. I release them of that obligation and we never speak about it again. If you’re going to help someone, don’t keep bringing it up, because if you do, the person feels like they have to pay you back. So just don’t say anything.

People might be tempted to turn to predatory lending options like payday loans or title loans. Why should we avoid these at all costs?

Payday loans are loans that are given to people based on their next paycheck. Title loans use your vehicle’s title as collateral to guarantee the loan. What happens in that situation is say you’ve got a car that’s worth $5,000 and you borrow $500, but you default on that? Now they take your $5,000 for that $500 loan.

Title loans are particularly dangerous for two reasons. One, when you look at the fees and you annualize those fees and turn them into an interest rate, you will see that those fees translate to interest rates of anywhere from 300 percent to 1000 percent. If you were in trouble and someone said, “Hey, I’m going to lend you money at 300 percent,” you wouldn’t do it. Two, if you’re in a jam and you don’t have enough money now, you’re pledging money from your next paycheck, you’re already behind. How are you going to catch up? Studies show that many people end up in a debt cycle with these loans.

What are your thoughts on taking 401k loans or early withdrawals from your retirement accounts in order to make ends meet?

In the book, I talk about where to go before you reach that point. But if you’ve tapped everybody that you could or there is nobody to tap, if you have no savings, then that is a source of money that you can tap. It’s not ideal. I’d hope and pray that you don’t have to do it. But if you do, go ahead and do it, because sometimes you gotta do what you got to do. Now, don’t take a lot of the money. Take it little by little as you need it.

Can you walk us through the order of succession when it comes to who you should be talking to, what resources you should be accessing when you’re in a financial crisis?

First, go through all of your savings — all of it. That’s why it’s there. Then, go to friends and family and ask them to help you out. Many churches, synagogues and religious organizations have funds that they set aside for members in need. Tap into state and federal funds, apply for unemployment benefits if necessary, apply for welfare, Medicaid. Use those resources. That’s why they’re there. If none of that is available, then you can tap your retirement funds. It’s going to cost you. But it’s there.

I think there’s a lot of confusion around whether an emergency fund is enough as far as savings go. How many types of savings accounts should people have in order to be able to adequately deal with emergencies?

I like to have my money in different savings “pots.” It is a way to organize my savings and also prevent me from tapping money that I shouldn’t be tapping. I have something called a “Life happens pot,” which is different from the emergency fund. “Life happens” is the pot of money for when life happens, like your car breaks down. That’s the pot that you reach for in those situations, because a lot of times, people don’t have the emergency funds when they get in a crisis because they’ve been dipping into it.

People are always asking me, “I’ve got all this money, but it just is not earning anything.” That’s not that money’s purpose. Don’t worry about that. Its job is to be there risk-free. I make sure that I’m investing and getting growth in my other “pots” of money like my retirement account and my children’s college fund.

What are common financial scams that we should look out for?

In many communities, particularly minority communities, there are Ponzi and pyramid schemes like the sou-sou, which is a savings technique that many immigrants use where people pool their money and somebody gets the pot of savings every month. Now, people have used that to create these pyramid schemes where, say, you put in five hundred and they promise you four thousand dollars. If they say “I can guarantee you return,” you are about to be scammed. Scammers know that people feel like they’re behind the curve. They know that people are anxious to grow their money. They know that people are behind in savings. And so they’re eager to find a quick fix, a quick way to make money. And they play on that. They play on your trust.

Do you have any final words of advice?

I don’t want you to feel guilty. I want you to feel energized. I want you to feel motivated. Don’t just say, “Oh, that’s right,” and then go back and do the same thing. Take it slow. I’m telling you a whole bunch of stuff that requires a lot of money and discipline. Once you develop that habit, when you start to make money or you get back on track, then it’ll become easier, because you have more money at hand. All of us will encounter some sort of financial emergency. And if you’re prepared next time around, you can find yourself in a much better situation.


The audio portion of this episode was produced by Clare Marie Schneider. Engineering support was provided by Patrick Murray.

We’d love to hear from you. If you have a good life hack, leave us a voicemail at 202-216-9823, or email us at LifeKit@npr.org. Your tip could appear in an upcoming episode.

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