Life is quite unpredictable. One can face a major adverse event that can affect their life tremendously. It could be a car accident, the loss of a job or a severe illness. Though predicting a personal financial crisis is not easy, being prepared can reduce its impact. The following can help you minimize the impact of such a crisis.
Maximize your savings
During a personal financial crisis, your savings accounts, money market accounts, and short term investments can come in handy. Since the value of such resources does not fluctuate due to market conditions, you have to make use of them first. Such accounts allow you to cash out money first without the risk of incurring a financial loss. You will also not be charged early penalties for utilizing these resources.
Avoid putting your money in high risks investments such as stocks until you have enough liquid cash in your accounts. You should save a good amount that can cover your expenses for a few months. Having at least three months expense cushion can help you manage a personal financial crisis well. This ensures that you will not suffer even if you lose your job unexpectedly. You will still have sufficient money to cater to your daily expenses as you search for another job.
Come up with a budget
If you don’t know how much money you spend every month, you cannot estimate a reasonable amount for your emergency fund. The lack of keeping a budget makes it hard to know when you are misusing useful funds. A budget may not force you to change your money habits, but it helps you figure out how you use your income every month. It also enables you to figure out your financial position and helps you know if you have enough for a personal financial crisis.
Minimize your bills
Reducing your bills can help you free up some cash that prepares you for a financial crisis. Start cutting down on the expenses that you no longer need. If you leave your air conditioner running all day, you can reduce your utility bills by regulating it. Consider shopping for low insurance rates if you have been paying high premiums with a particular company. You should also avoid wasting money on finance charges and late fees. During a personal financial crisis such as a job loss, you need to be organized with your bills so that you don’t pay late fees. Set dates on your calendar so that you pay your bills on time and avoid missing out on a payment.
Reduce credit card debt
Credit card debt can make you pay high-interest rates, which take a considerable portion of your budget. Paying down your debt can help you minimize your financial obligations. This frees up your funds so that you can invest in other crucial things. Getting prepared for a personal financial crisis can save you from a lot of stress. Look for financial crisis blogs to find more tips.