What is a personal financial crisis?
Personal financial crisis, this is something we all think about, although we don’t always call it this. A personal financial crisis is when you are hit financially by a major negative event that affects your financial security. This can be something as simple as losing a job or getting an illness. It could also be something as severe as a car accident or a fire. However, it could also be something more global, such as a pandemic.
What is so painstaking about the possible occurrence of a personal financial crisis is that it is totally out of our control. That being said, it can become much less threatening if you are prepared for the possibility of it happening. You might ask, ‘how on earth can I be prepared for something like that?’ It is possible, through key financial management, and it will surely help you sleep easier at night. Consider financial factors of your life such as bills, budgeting, cash loans, and your credit score.
Let’s look at a few simple ways that you can prepare.
Budgeting.
One of the first steps to financial balance in any situation is understanding how much money comes in and goes out of your bank accounts each month. If you do not know this, then it is not possible to know how much money you have or need for a back-up fund.
Keeping a budget on your finances will help give you an idea if you are living below your means, or if you are overextending yourself. While a budget cannot tell you off when you overspend, it can open your eyes to help you realize that overspending may not be the best idea. Having this budget in place can help you to feel more at ease with your financial standing.
Think about liquid savings.
Think about what savings you have. This means considering all your accounts, be they checking accounts, savings accounts, and SD’s, or even short-term government investments. Any of these can be helpful to you in the event of a crisis. You want to turn to these first as their value will not fluctuate, as things would with stocks, or ETFs. Investing is good, but it fluctuates, hence your personal savings and accounts should be the first port of call.
You might consider taking money out of retirement funds, however, if you do this you may face early withdrawal penalties or tax penalties. With your liquid savings, you do not suffer this, so this is the best option, and is exactly why you should keep some money tucked away in them.
Minimize your bills where you can.
You don’t need to do this immediately, but understanding that cutting your bills down is something that can be useful. Cut out things that are not vital to keep expenses low. The more you do this, the bigger your savings will get, and therefore, the more you will have set aside. Overall, this means that if you minimize your bills, and stop any unnecessary spending, if a financial crisis does occur, you will be able to pay your bills, stress-free.
Managing your bills.
It’s not uncommon for money to get wasted on late fees and finance charges, but if you are hit by a crisis, you really don’t want to face these on top of your bills. A lack of organization can end up costing you more money than you have when we consider bills. A late credit card payment alone can set you back hundreds of dollars.
A good idea is to take a little time every month, or every two weeks, to look through your accounts so that you do not miss any due dates. Scheduling electronic payments is also a good idea, meaning that your payments arrive a few days in advance, so if anything gets delayed your payments are still made on time! It’s an easy cheat that will ensure your finances and bills are secure.
Take note of your Non-cash assets.
It might seem obvious, or even too simple to be effective, but non-cash assets can be saviors. If you want to travel, consider using points to cut back on expenses, memberships and gift cards can also be useful here.
Not only this, but consider the food in your house, while tinned food is not always the best, it is often very cheap, and with skill you can make some good meals out of it, saving you money on your groceries.
