We are living in a time that will undoubtedly remember for its enormous challenges, which range from a continuing pandemic of disease and the accompanying political turmoil to the impending effects of a possibly devastating financial crisis.
That means we can still learn from the situation and get ready for when something similar occurs again. Nobody else is going to arrange our destiny for us, after all. If you wish to withstand the next storm, you can take a few important actions to better prepare for an unforeseen crisis.
The thought of a significant bad event affecting your money, such as a job loss, sickness, a car accident, or a pandemic, may keep anybody up at night. However, if you’re well prepared. For instance, if you have secured credit in Canada, the possibility of something expensive and out of your control happening becomes less frightening.
The Importance Of Being Prepared For A Financial Crisis
Economic crises have a number of unfavorable side consequences, chief among them being rising unemployment and a decline in international financial markets. Everyone experiences stress during financial crises, but you often experience less anxiety if you are well-prepared.
Different is the coronavirus pandemic. It is the first epidemic to be worldwide genuinely. It has had an impact on people’s financial well-being in addition to their physical health. Even if you lose your work, you ought to have enough money saved in an emergency fund to meet your living expenses for the upcoming few months.
The uncertainty is arguably the most stressful aspect. When everything will return to normal, nobody knows. The duration of the coronavirus pandemic weeks, months, or years?
How long would it take you to find a new job with an equal salary if you lost your job due to the pandemic? This emphasizes how crucial it is to plan for a financial disaster.
There is no assurance that the government will be there the next time. The government may have assisted Canadians this time with the Coronavirus. If the government cannot do so, taking care of your own family is crucial.
Identify The Cause Of The Crisis
In order to respond to a financial crisis, you must comprehend its root. Whether the crisis is internal or external, the more you understand what caused it and what it means for your company, the more equipped you are to put solutions into action.
Your operations should include financial analysis, which may assist you in determining the root causes of internal problems. These might involve neglecting to take action against clients who repeatedly pay late and combining personal and company affairs.
Here are 8 steps to follow while facing a financial crisis.
1. Maximize Your Liquid Savings
Your best bet in a crisis is cash accounts, such as checking, savings, and money market accounts, certificates of deposit (CDs), and short-term government investments. These are the resources you should utilize first since, unlike stocks, index funds, exchange-traded funds (ETFs), and other financial instruments you may have invested, their value is not affected by market circumstances.
This implies that you can withdraw your money whenever you want without suffering a loss of money. With the exception of CDs, which often compel you to give up part of the income you’ve earned if you shut them early, you won’t also suffer early withdrawal penalties or pay tax penalties when you take your money, unlike retirement accounts.
Wait until you have several months’ worth of cash in liquid accounts before investing in stocks or other higher-risk assets. How much money do you need for how many months? Your risk tolerance and financial responsibilities will determine this.
You may want to save up more months’ worth of costs if you have a significant responsibility, such as a mortgage or a child’s continuous tuition payments, than if you’re single and renting an apartment.
A three-month emergency fund is the absolute least, but some people prefer to retain up to two years’ worth of expenditures in liquid savings to prepare for extended periods of unemployment.
1. Set A Budget
Many people who have struggled with budgeting see it as a burden that prevents them from enjoying life. A budget does not ensure that you will spend less, but it can provide you with relevant information to help you decide how to spend your money.
As a money manager, think of your budget. You may have a strategy for where every dollar goes if you set limitations and keep track of your spending.
After that, make any necessary modifications. You may discover that sticking to a budget results in a monthly surplus; this may be a sign that you can safely increase your monthly savings contribution.
- You will only know how much money you need for an emergency fund if you know exactly how much you have coming in and going out each month.
- You also won’t know if you’re living within your means or going beyond if you don’t maintain a budget.
A budget is a handy tool that helps you determine if you are satisfied with how your money is being spent and where you stand financially. It is not a parent and cannot and will not make you change your behavior.
2. Prepare To Reduce Your Monthly Bills
Although it might not be necessary right away, be prepared to eliminate everything that is not required. You’ll have less trouble paying your bills when money is tight if you can keep your recurrent monthly spending as low as possible.
Start by reviewing your budget to identify areas where you may be overspending. For instance, is your checking account subject to a monthly fee? Examine the options for changing to a bank that provides free checking.
Are you paying $40 a month for a landline you rarely use? Learn how you might cancel it or switch to a lower-rate emergency-only plan. You could discover strategies to reduce your expenses right away in order to save money.
You may have a tendency to keep the lights on in unoccupied rooms or let the heater or air conditioner run while you aren’t home. Your utility costs might be reduced.
Additionally, this might be an excellent opportunity to compare insurance prices and learn whether you can cancel specific insurance policies, like auto insurance, in an emergency. If your insurance company offers you an extension, look for the procedures and be ready, such as globe life insurance rates.
3. Get A Better Credit Card Deal
Transferring a balance to a card with a reduced rate is beneficial if you presently carry one. Paying less interest allows you to pay off your overall debt more quickly and gives your monthly budget more breathing room. Make sure the money you save by switching to a lower interest rate outweighs the balance transfer cost.
Aim to pay off your debt during the promotional period before your rate increases if you move your balance to a new card with a low introductory annual percentage rate (APR).
Asking your current credit card provider to reduce your monthly interest rate is worthwhile. Because it is less expensive to retain an existing client than to acquire a new one, businesses will occasionally take this action to maintain you as a customer.
Keynote: You can always find methods to make extra money, whether through selling useless items, after-hours freelance work, or even taking on a second job.
1. Prepare An Emergency Fund
The epidemic has prompted some people to try to save more—up to a year’s worth of costs, in some instances than the common wisdom suggests: three to six months of your necessary needs stashed away in an emergency fund.
It’s more crucial to concentrate on the practice of saving rather than the precise amount in your bank account, regardless of whether you’re a fantastic saver or having trouble catching up following economic crises.
Along with saving money for an emergency fund, you should also select what situations you’ll use it for and be willing to use it when necessary.
Your emergency fund is available; Emmanuel Henson, CFP, founder and president of Gamma Wealth Management in Towson, Maryland, frequently has to explain to customers.
According to Henson, some individuals find it difficult to accept that they have to rob their finances, and they take it personally. However, “You don’t owe anyone an explanation” when crises like illness and job loss arise.
Remember that you will ultimately be able to replenish your emergency savings account if you need to use part of it.
2. Hold Foreign Currencies
You may profit from owning foreign fiat currency, from the exotic to the British pound post-Brexit.
Although many other currencies have struggled recently compared to the US dollar, this has only sometimes been the case. The US dollar performed poorly versus numerous other currencies during the past ten years.
Not all foreign money should be destroyed. Many additional undervalued currencies may be purchased with dollars and Valuable Canadian Penny. The Singapore dollar, which has higher rates than the dollar and serves as insurance against dollar declines, is regarded as a haven currency.
Overall, keeping foreign currency in an offshore depository bank account is a terrific method to boost the return on your cash investments and avoid the negative interest rates that governments and central banks love to impose in the face of a financial crisis and impending economic collapse.
3. Look For Ways To Make Extra Money
Everyone has a way to make extra money, whether selling items you no longer need (online or at a yard sale), babysitting, pursuing sign-up incentives for credit cards and bank accounts, freelancing, or taking a second job.
Even while the money you make from these hobbies may not seem like much compared to what you get from your regular work, over time, even little sums might build up to something important.
Additionally, several of these activities offer additional advantages: You may have a less messy home or decide to make your side job your career.
4. Check Your Insurance Coverage
We advised comparison shopping for cheaper insurance rates. You can make simple adjustments to reduce your monthly costs if you have too much insurance or obtain the same coverage from another carrier for a lower price.
Nevertheless, having good insurance protection helps stop crises from developing one after the other. It’s important to ensure adequate coverage rather than just the bare minimum. This covers both existing insurance and any future purchases of coverage.
If you suffer a severe sickness or accident that keeps you from working, a disability insurance policy may be essential, and an umbrella policy may fill any gaps in your other plans’ coverage.
Even though life is unpredictable, you may avoid disaster by being cautious and well-prepared. With the correct planning, a possible financial catastrophe can be reduced to a brief setback. Good financial advice is good investment advice, come rain or shine. Only put some of your eggs in one basket.
Whether or not there is a financial crisis, planning for one can help you keep and increase your money in the long run. The above actions will lawfully lower your taxes, help your business, diversify your investments, and increase your travel rights while things are good while protecting your money in a financial crisis.
You should have a greater chance of succeeding than others if you are ready for both possible outcomes. Whether you’re here because there is a global financial crisis or want a Plan B for when the economy collapses, the best plan is to act now. Stop waiting. Being inactive is the only risk. Delays are the only costs.