We live in a world that is full of uncertainty, and this can often mean that people’s financial situations are not as certain as they once were. Many people go through a financial crisis at some point in their life. How quickly you can emerge from the other side depends on your level of preparedness. Even if things are going well at the moment, it is still worth being ready for the time when things may not be quite as rosy. Check out the following steps that you can implement to prepare yourself for a personal financial crisis.
Take a Money Inventory
The first useful step to take is to take a monetary inventory to see exactly where you are currently at financially. So, this means checking all your accounts to see how much you have in each, as well as assessing your debt situation. On top of the amount you actually owe, you also need to know what all the minimum payments are. In terms of your personal financial situation, how much money is in your savings account and what are your liquid assets? You also need to know exactly how much money you are spending every month. You could look back at your former statements for a better idea of this. Another useful activity can be to track your spending from now on to see where your money is disappearing to. In the event of a financial emergency occurring, you need to know how to access your money quickly. By taking all of these steps, you will feel much more prepared for a financial emergency straight away.
Tackle Your Debt
Your debt situation could directly cause your financial emergency. Even if it is not, it could easily serve to make it worse. High-interest debt can be the most damaging, so this is what you should aim to pay off first. If you have got into a serious financially damaging situation, you may need to get in contact with experts in debt lawsuits or similar professionals to help you get out the other side. Of course, some debt takes time to clear, such as student loans and mortgages, but this tends to be kind of low-interest debt that you can manage. It would help if you also were especially careful about anything such as payday loans or other high-interest debt that can harm your personal financial situation.
Cut Back on Unnecessary Expenses
The first point that we made was all about tracking your financial situation. Once you have done this, you are more than likely to have uncovered some expenses that you do not need in your life. For example, are there any subscriptions that you are not using? So many companies operate on a subscription model these days that the answer is more than likely to be yes! Perhaps you even have one or two that you took out and then forgot about entirely. Another useful technique is to purchase generic brands rather than their multinational counterparts. On some things such as prescription drugs, you are getting exactly the same product for a fraction of the price. You should also evaluate all your bills to see if you are getting the best deal. There are plenty of comparison websites out there that make the task much easier. You could also look for cheaper or free alternatives to the things that you are doing. For example, instead of going to the gym, you could try exercising outside instead.
Diversify Your Income
A lot of people find themselves overly reliant on a single source of income. Generally, this is their full-time job. However, we live in a world that is rife with uncertainty, and people are increasingly looking to seek out other avenues of income. Perhaps this could come from a side hustle or a freelance job. It may come from you setting up a little business on the side. As jobs are becoming automated at an increasingly rapid scale, it makes sense that you open up as many different avenues of earning money as you possibly can. Along with doing this, it is also worthwhile for improving your knowledge in a range of different areas. This helps out significantly when it comes to boosting your employability.
Automate Your Savings
One of the best ways of being prepared for a sudden financial emergency is to have a strong savings account already built up. However, many people struggle to keep up this level of discipline in their saving, and it often results in them splurging on other things. One of the best ways of taking this out of your hands is by automating your saving. If you set up a certain percentage of your monthly earnings to go straight into a savings account, this is money that is set aside, and you won’t be tempted to go ahead and spend it. When your savings are in place, as much as possible, you should avoid dipping into this account. This way, it is always going to be here for you when you experience a financial emergency.
Sell Your Unwanted Items
If you need to make money in a hurry, one of the best ways of doing so is by selling your unwanted items. Over the years, people accumulate all sorts of things that they do not want or need. Instead of letting this sit in your garage or loft, you can use them to make some much-needed cash. Online selling websites have made this easier than ever. You can even do this via an app. If you have any antiques or anything else that could be particularly valuable, it is worth having it professionally valued as this will ensure that you get the right price for it rather than risk being ripped off.
Maintain a Strong Credit Score
If you do get into a situation in which you find yourself needing to borrow money, your credit score is going to end up playing an absolutely invaluable part of this. A history of paying your bills on time is the best way of giving lenders the reassurance they desire. It would help if you also tried to limit your debt level as much as possible. Credit cards can be a good way of proving your financial responsibility if you have continued making at least the minimum payment regularly.
Be Prepared to Ask for Help
A major problem that many people get into when they are in financial trouble is that they are afraid to ask for help. Talking about money can still be a particularly taboo subject. Even if you do not need help right now, it can still prove to be useful to know where you can turn in the event of an emergency situation occurring. This could be a trusted friend or family member. It would help if you also got into the habit of talking about money with your family. It does nobody any favors if you are attempting to shoulder the whole burden by yourself.
Run Different Scenarios Through
It can help you out to think about a few possible financial emergencies that could occur, as well as how you would respond to each of them. For example, if you were to lose your job suddenly, what would you do next? If you have a side hustle, you may increase your reliance on this. If you have an emergency savings account, this could be the time to dip into it. If you have developed a wide network of contacts who can potentially help you out, this may be your time to turn to them. Ultimately, if you have already run through in your mind what you would do, this can help you to know where to turn straight away.
Preparing for a personal financial crisis can help to put your mind at ease in a big way. Ultimately, it gives you some guidance on what you would do in the event of a crisis situation. It also spurs you on to get your personal financial affairs in order. Everything starts off with you taking an inventory of your current monetary situation. Only this way can you work out where you are spending too much money and the areas in which you can make cutbacks. Next up, you can work to start tackling your debt, as well as diversifying your income stream to ensure that you are making money from different areas. Setting up an emergency fund is also a worthwhile endeavor, but it is one that can be helped enormously by automating your finances so that you do not have to think about it yourself. Getting your financial affairs in order is invaluable, but you need to know where you can turn to ask for help at the same time. If you find yourself in a sudden financial bind, taking action like selling your possessions can go a long way towards ensuring that you get out of it at the earliest possible opportunity.
Ritik Singh
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Sarah Williams
Rachita Kotian