The mere thought of suffering a setback in life that has the potential of affecting your finances be it a job loss, car accident, or even pandemic – can keep anyone on toes to work harder to avoid getting swayed by the storm. If you are properly prepared, the prospect of something that can drain your finances becomes non-threatening.
Here are some important pointers on how to deal with personal finances in case of an economic crisis.
Pay down debt
It is important to pay down any outstanding debt, especially high-cost debt such as your credit card balance. Doing so will help in creating some breathing room on your budget. As we have seen with the current corona virus, economic downturns can lead to loss of jobs. If you are worried about job security, it is important to pay off your obligations as doing so will give you some peace of mind. Give priority to credit card debt, then turn to other types of debt such as mortgage and auto loans.
Boost emergency savings
Job loss can make it difficult for people to pay their day to day expenses. You need to beef up your emergency fund – which is the pool of cash you reserve specifically for events such as downturns. Even when you are paying off debt, it is important to put a priority on saving. Your emergency fund should be loaded with one month’s worth of your living expenses. After that, pay off your debt and focus on building up a reserve that can last up to six months.
Identify ways to cut back
It is always a good idea to go through your monthly expenses and identify items that you don’t need. Discretionary items are the most likely ones that you either eliminate now or in the future. They can comprise of subscription services or just spending patterns. Dinners out with friends, social events, speeding tickets, unnecessary vacations, among others.
Live within your means
Financial experts recommend not spending more than 30 percent of your net income on discretionary items. It is a good practice to create a monthly budget to ensure that you are living within your means and not overspending. You have to pay your rent or mortgage, you have to pay for utilities, insurance, and have to put food on the table. All these are essential expenses that must be covered first.
Put your skills into use
During a financial crisis, your life may be disrupted in many ways. You may need to take a loan to meet unavoidable situations. If you get extra cash, put the cash into a side business that can sustain your lifestyle. Depending on your skills, you may help people to fill taxes, accounting, setting their businesses online, digital marketing, content creation, lead generation, ow whatever you’re good at, that you can trade your time for pay. If your services are good, your customers will refer you to their friends, and that is a sure way to grow your client base and your income.