Americans are used to experiencing hard times, and whenever a crisis occurs, it can test one’s personal finances. Some of the common crises that can affect people’s finances include a recession or a pandemic.
While preparing for a financial crisis is important, it’s also better to start now than to panic later. There are a few things that you can do to prepare ahead of a situation that can affect your finances.
1. Look at Your Budget and Find Ways to Save
Having a budget helps keep track of where your money is going and allows you to adjust when necessary. Online tools can help you keep track of your expenses. A budget app or a budget sheet can help you keep track of the things you spend extra money on, such as car maintenance.
•Identify Variable vs. Fixed Costs
Having a budget can help you identify variable and fixed costs. Fixed costs are typically the same every month, and these are typically out of your control. On the other hand, variable costs are expenses that change depending on your lifestyle and seasonal patterns.
•Determine What to Pay First
If you have a hard time covering fixed costs, consider paying more important bills first. However, if something has to be paid for, such as shelter or food, then look for ways to survive. Some of these include paying for child care and transportation to have the time to make more money.
Some of the debts that you have, such as student loan payments and credit cards, should be sent the minimum amounts due when you are strapped for cash. This will help avoid credit score damage, as well as higher interest payments.
•Start or Grow Your Emergency Fund
After you have identified the categories of expenses that you’re paying, you can start to trim them. Having a plan can help you save money and establish an emergency fund. Some of the solutions that can help you save money include paying off your credit cards or refinancing your mortgage.
If you have an emergency fund already started, then you should use it to make ends meet if you run low on your monthly budget. Although it can be a bit frightening to start dipping into savings to help you feel secure, it’s much better than not paying your bills. You can always add more funds to your emergency stash again later.
2. Protect Your Credit Score
During times of financial hardship, you may find yourself paying for more things with your credit cards. This can affect your credit score negatively if you don’t have an emergency fund to use.
•Make On-Time Payments
When it comes to a good credit score, the key is making on-time payments. Even if it means carrying a balance and paying the minimum, it’s still important to make these payments.
•Consider Your Credit Utilization
If you have a hard time managing your credit card bills, then it might be tempting to put more money into your cards than you would normally. However, be aware that this can affect your credit score. One of the most important factors that you can consider is how much of your limit you use. Carrying a balance of over 30% can negatively affect your score.
•Make Hardship Programs a Final Option
Some credit card companies have programs that allow you to suspend fees and reduce what you owe. You can contact your lender or issuer to see if there are hardship programs that can help you. These programs typically provide a payment plan that lasts for a short period. Some companies give you leeway if you have experienced a serious illness, divorce, or a family emergency.
3. Make a Plan for If You Lose Work
If you’re worried that you might lose your job due to a prolonged downturn, then you must keep up with your networking opportunities and resume. Getting laid off can temporarily put a strain on your bank account. Update your resume to reflect on your most recent experiences and skills.
A side hustle can be a great alternative to your main job if your pay is in danger of shrinking. Having a plan can help you keep moving forward and find new opportunities.