As the impact of coronavirus continues, this is the time to get ready for the next financial crisis.
Coronavirus continues to create chaos on people's budgets, financial stability, income, and the overall economy.
In fact, this has caused a lot of people to have a different perspective when it comes to their money.
Most importantly, the odds of another financial crisis are inevitable. Certainly, none of us want to experience job loss, illness, or any emergency.
However, we must be prepared for the unexpected.
Let's get into how you can turn a financial crisis into a temporary problem and overcome it.
Increase your emergency fund for a financial crisis
The best and fastest way to increase your emergency fund (aka clutch fund) is to spend less than you make.
If you don't currently have an emergency fund, you need to build one. An emergency fund is there for the unexpected things that happen in life. Look at it as a rainy day fund.
In general, your goal should be to have 1-3 months of expenses saved if you're in debt and 3-6 months of expenses if you're out of debt. However, to be prepared for the next financial crisis, save 6 months of expenses depending on your job security.
That is to say, an emergency fund is always based on your own situation and it varies from person to person. You have to decide how much money you are comfortable having in your emergency fund.
At the end of the day, increasing your emergency fund is the ultimate goal. Put your emergency fund in a regular savings account, online savings account, money market account, or even keep it in cash. These methods don't change with market conditions, so you lower the risk of losing money in the market.
- Related reading: Coronavirus: Preparation Over Panic
Create an achievable budget
Another financial crisis will require you to react quickly and make changes as needed. This is why having a good financial foundation and budget is critical.
Most importantly, if you aren't using a budget, it will make it more difficult for you during a financial crisis. You will not be able to understand if you have the extra money in your budget or if you're spending too much.
Also, a budget is your most reliable resource for listing out your expenses. Ultimately, you will be able to cut expenses when you need to.
Above all, the foundation of your budget is based on what you actually need to spend and not on what you want to spend.
Budgeting can be difficult to create real numbers. But, the more realistic you are, the more likely you are to stick to your budget.
You will need to take some take to go over your budget in detail in order to make it achievable. If not, you will struggle with how much money you are spending.
- Related reading: Budgeting 101: How To Create A Budget
Get out of debt
Most importantly, having a lot of debt will hold you back from reaching financial freedom. Reducing your monthly financial payments will free up your income to focus on other important expenses.
The last thing you want during a financial crisis is having high debt payments, such as student loans. This will allow you to create some breathing room in your budget.
So, you should prioritize paying off your debt using the debt snowball or debt avalanche method. If you want motivation while paying off your debt, go with the debt snowball. On the other hand, choose the debt avalanche if you want to attack the highest interest first.
Above all, both methods are fine. But, you should choose the one that suits your financial situation the best.
If you haven't already created a plan for paying off your debt, get started today. You need to know exactly how much you owe, who you owe, and the minimum payments you're required to make.
Having debt can make your financial situation even harder during difficult times. The interest will continue piling up if you don't address the issue now.
Read reading: Paying Off Debt: Is It Worth It?
Concentrate on being prepared for the financial crisis
Your basic life necessities are most important during a financial crisis. We don't want to put extra stress on ourselves by going further into debt.
Things such as car maintenance, medical bills, and emergencies can impact our budget. It's a great idea to use sinking funds for your savings goal to be more prepared.
Using a sinking fund may sound similar to an emergency fund, but it's a little different. An emergency fund is used for only emergencies. You should never use this money unless it's an absolute emergency.
Sinking funds are created for a specific goal such as birthdays, Christmas, back-to-school, vacations, etc., and gives you a strategy to reach those goals.
By having a savings goal in place, you could reduce some of the impacts of a financial crisis.
Related reading: Sinking Funds: What They Are & Why You Need Them
Increase your income with side hustles
Having multiple streams of income can give you peace of mind during a financial crisis. In case of a job loss or reduced hours, you will have a backup plan for income.
Starting a blog is a great option because you can work from anywhere you have internet. Bluehost is a great hosting company that gives you a free domain for purchasing a plan of 12 months or longer. Use our affiliate link to get the best pricing.
The money you earn from side hustles may not feel like a lot when compared to your full-time day job, but extra income is always helpful if your full-time day job income goes away.
Also, you may create a side hustle that can become a full-time career.
Relating reading: Work From Home Jobs: 10 Best Ways To Make Money
Final words – how to get ready for the next financial crisis
In conclusion, life is unpredictable and you will experience difficult times. It seems as if those times always occur when it's not ideal.
However, taking the steps we talked about in this article will help you be better prepared financially so you can sleep better at night during the next financial crisis.
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