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Regardless of how stable your job is, you never know when a financial crisis might occur. Pandemic, car accidents, illnesses that require significant hospital bills, anything is possible. Sure, the future is not certain, but you can work to secure your future. You can still start today to ensure that you and your loved ones don’t ever face an extreme monetary crisis.
5 Ways To Prevent A Financial Crisis
Pandemic taught us one thing for sure: and that’s to plan. You and your family should have a sound financial emergency strategy to reduce your risks of facing an extreme monetary crisis. Here are five things you can include in your life to prepare an effective plan for monetary emergencies.
1. Save Today
You must start saving today. Saving now means spending more later. Most often, you face a financial crisis because of a lack of savings. Even a tiny portion of saving can help you make it through tough times.
You don’t have to start saving massive figures. Follow the phrase, “Drops of water help you build up an ocean.” You can take out a portion of your monthly income and put it aside in your bank accounts or keep it as cash reserves at home. You should never take money from these funds unless for a financial emergency.
2. Cut Down On Your Luxury Expenses
Starting from today, observe your spending patterns and calculate your essential expenses. You never know how much extra spending you’re doing on things you don’t need. It’s better to focus on your needs while focusing lesser on your wants. That’s where budgeting comes in. Shifting towards minimalism and budgeting help you control your expenditures, improve your cash flows and make you more adaptable for financial emergencies in the future.
3. Pay Off Your Debt
If you’ve got any pending loans, you should pay them off right away. The lesser you owe, the safer it is for you. High debts might mean reduced liquidity because even if you don’t have any income, you need to pay off the monthly instalments and interest charges. Debts are the last resort you should go for, and that too for times when you face financial emergencies.
If you don’t have any debt at present, you should stay away from it for the near future. That way, even if a financial emergency strikes, you can get through it with one less problem to worry about.
4. Know The Best Actions For Financial Crisis
No matter how effective your financial disaster planning is, it can’t be perfect. You might still go through a financial hurdle that no amount of savings could avoid. The best way to cater to these situations is by planning for them as well!
You can make a list of all financial institutions or alternatives you can opt for to guide you along the way. For instance, do your research about bad credit loans, quick cash loans, or see if there’s someone in your friends or family you can depend on during your financial crisis. If you know the possible actions, you can mitigate the risk of spiralling your financial emergencies even more and live through them more effectively.
5. Improve Your Liquidity
Sometimes you may have savings, but they are in the form of real estate or stocks. Ideally, you should keep a fixed portion of your net worth in the form of cash or alternatives that assure easy liquidity. You must keep your cash flow as favourable as possible. You can open up a savings account that pays a handsome interest rate or invest in government investments that promise a risk-free return.
A financial crisis means a shortage of money or cash. You may have capital, but if it’s fixed and you can’t convert it into cash easily, then you may not be able to avoid financial shortages. So, the higher your liquidity is, the better you can cope during your financial emergencies.
Selling properties isn’t an easy task. If you face financial emergencies, you need time to get cash from selling your property. Often, you even end up selling your assets at a loss because you’re desperate to get cash and fast. The same is the case for stocks and long-term investments. Therefore, assess your financial responsibilities to determine how much cash you should have in hand to help you through a sudden financial disaster.
Final Thoughts
Financial emergencies are a part of your life. But it’s up to you if you want these phases to end quickly or extend till everything goes downhill. You can certainly act to mitigate the risk of encountering a financial crisis or manoeuvre through them by playing strategically. You can follow the five small yet crucial pointers and avoid facing money problems.
Put in efforts today to reap the benefits tomorrow.