Getting hit with a financial crisis, especially when you least expect it, can be extremely overwhelming. And this could conjure up in many different ways—losing a job, sudden illness, or an accident. In situations like this, you’re forced to rethink your finances and your survival for the next couple of months.
That’s why it’s crucial to have a plan in place. Not only will you learn survival tactics, but it will also help you deal with financial problems more effectively.
Below we’ve listed down a couple of ways you can reduce the impact of a crisis.
Create a Monthly Budget
Start by preparing a budget for your monthly expenses. To get started, you’ll need to divide your budget into two parts—essential and non-essential. Under essential, you will have to assign a certain percentage of your income towards rent or mortgage, transportation, groceries, and other loans that need immediate clearing.
Entertainment, shopping, streaming subscriptions, and more will fall under non-essentials. Here’s where you closely examine your expenses. If you’re not making use of that gym membership, get rid of it. Can survive without those new pair of shoes? Don’t buy it.
The purpose of this exercise is to understand the back-up finances you’ll need when there’s no steady income.
Manage Your Monthly Expenses
Sometimes, you will find yourself going over your assigned budget. This could either happen because of an emergency or frivolous spending. This is why you have to keep a close eye on your finances, down to each dime you spend. Not only will this inculcate financial discipline, but it will also encourage you to avoid spending on unnecessary things.
Instead of eating out or ordering take out, start preparing meals at home. Cancel streaming or magazine subscriptions you don’t require. Make your own coffee at home instead of visiting the café down the road. You can also cut down on transportation costs by pooling with your colleagues to work.
Another trick that comes in handy is downloading an expenditure-tracking app. With this tool, you’ll have a fair idea of where you can cut down even further.
Find a New Source of Income
If you’re stretching every last dime from your salary, you know it’s time to start earning more. One way to increase your savings and clear those pesky debts is by finding a second stream of income. There are several ways you can earn some extra money on the side, whether it’s pet sitting your friend’s dog or freelancing.
Now, this isn’t a replacement for your primary source of income. However, should you lose your job, you can rely on this second source of income for sustenance.
One more thing you can consider is increasing your primary source of income. This could be in the form of getting that promotion at work or looking for a new opportunity altogether. Do your research, for both primary and secondary incomes, and find a way that best works for you.
Set Aside an Emergency Fund
This may seem like a repetitive point, but it holds a lot of importance. Before you create an emergency fund, keep in mind that it should assist you for at least three months. Once you have the time frame in place, you can start directing a certain amount towards this fund.
This fund can help you when there’s a medical emergency, when you’ve lost a job, or when you’re recovering from an illness. And it’s even more handy when your primary source of income isn’t steady.
Another tip—also maintain savings other than an emergency fund. This fund will also come handy if your financial crisis is lasting longer than expected. However, it’s crucial you access these funds only when you absolutely need it.
Use Your Credit Card Wisely
Credit cards will work in your favour if you use them properly. For instance, assign a limit that you can use month on your credit card. This limit should be easily repayable before the due date. Take advantage of the rewards or cashback programme on your card to get the best value on your expenses.
If your card offers deals and discounts on shopping or dining, don’t hesitate to use those benefits. Not only will this save you money but you’ll also end up earning points or getting rebates on these expenses.
When you use your credit card, be wary of how much you can afford. Never buy something you can’t afford. This is what leads to debt with climbing interest rates.
Reduce Your Debt
Dealing with piling debt can be a major inconvenience, especially during a financial crisis. Hence, you should focus on clearing these debts as soon as possible. If you have credit card debt with high interest rates, you can begin paying off those dues first.
Now, there are several approaches you can consider when managing your credit card debt—clearing the card with a lower balance, clearing the card with a higher balance, or consolidating your cards’ debt and opting for a balance transfer. You’ll experience financial, mental, and emotional relief when you finally pay off your dues.
Life is unpredictable. It’s something we can all admit. Unexpected events happen all the time and it’s good to prepared and careful. A personal financial crisis is challenging and will take a toll on you. That’s why you have to start devising a plan early on. Without strategies in place or proper research, you will find it difficult to deal with a crisis.
Follow the above tips and tricks, and a financial crisis will just be a temporary setback, instead of a permanent situation.