The idea that your life can be upended in a negative way by some uncontrollable significant event is unsettling, to say the least. Whether it’s an illness, car accident, job loss, or something else, life can and does happen. However, if, and when, “the other shoe drops,” the impact can be significantly mitigated if you’re on top of things. On that note, here’s how to prepare for a personal financial crisis.
Get Liquid
When you’re in financial trouble, or about to be, your liquid accounts and investments will rise to the fore, in terms of importance. Why? Because they will enable you to get cash when you need it most, and their value isn’t affected by market fluctuations. We’re talking your savings, checking, and money market accounts, plus any CDs and short-term government investments. You can also pull cash out of them whenever you want with no financial loss incurred. The only exception pertains to certificates of deposit: if you close them early, you may lose some earned interest.
Also, don’t put money in stocks or other high-risk investments until you have stashed in liquid accounts several months of cash. How much cash you require will depend on your monthly bills and risk tolerance. Aim for a three-month cushion, at minimum.
Establish a Budget
If it seems as though this advice makes the list of nearly every financial preparedness article, it does – and for good reason. If you don’t know how much you’re spending, and what you’re spending it on, you don’t really know how you’re doing financially. Are you living under your means? Are you overextending yourself? Without a budget you have no idea.
Cut Back
If a crisis is looming – but even if it isn’t but want to be prepared – you must identify ways you can slash your monthly bills. For instance, make sure you’re not unnecessarily paying fees or forking over cash for subscriptions you no longer really use. See if you could, if you needed to, lower your insurance rates, or pare your utility bills. And while you’re at it, create new habits now, like switching off lights in rooms you’re not using.
Get Organized
Make sure you’re not unduly throwing away money on finance charges or late fees. In fact, it’s smart to get a handle on this now – before you’re in trouble. One way to do it is by getting and remaining organized when it comes to your monthly bills, particularly those for credit cards.
Consider setting a date twice monthly so you don’t miss due dates. You also can establish electronic payments. At the very least, keep a running list of your accounts and bills due.
Assess Your Non-Cash Assets
Perhaps you have frequent flyer miles that can be used if you must travel, or gift cards you can use for entertainment when socializing with friends. Maybe you have credit card rewards you can convert to gift cards for a friend’s or family member’s birthday or other celebration. Using your non-cash assets wisely can help you reduce your monthly expenses.
Get a Lower Rate
If you currently have credit card balances, you may want to consider shifting them to a 0%-interest balance transfer card and paying them off before the promotional period ends and the interest rate shoots back up. This way, you’ll have just a single monthly payment with which to concern yourself, and you’ll save money, to boot. You can also consolidate your payments by taking out a personal loan through Achieve.
Reduce or Eliminate Credit Card Debt
If you tend to carry credit card debt, as opposed to paying your cards off right away, you’re paying a lot in monthly interest. That’s money that you could use to pad your emergency fund. So, it’s just smart to reduce your credit card debt or, if you can, pay those cards off and only use them when you must.
Ultimately, preparing for a personal financial crisis is just smart – even if no crisis is on the horizon. As you know, stuff happens, so make sure your finances are such that you can weather the storm.