An unexpected turn of events is fuel to an economic meltdown. The rapid escalation of COVID-19 into a pandemic is one example that cost many their livelihood after massive layoffs. So many had to rely on subsidies from the government, which can only bear so much of the financial burden.
With or without a crisis of a scale as huge as this, we are all vulnerable to getting stuck in a financial rut. We couldn’t predict the occurrence of any untoward incident like illness, getting laid off, accidents, injury, or even falling victim to laundering schemes. This may not often cross our minds, but the chances can never be absolutely zero, no matter how careful and thrifty we may be with our resources.
The only certain thing is uncertainty, as they say. From a financial perspective, risk is ever-present and, most often, it originates from uncertainty, which would require an amount of your wealth to minimize. That being said, we could only put more weight on the term emergency funds. But, if the worst, wallet-ripping thing happens, there at least needs to be more sophisticated ways to manage our finances other than allocating savings for contingency purposes. So, how can one prepare for it properly?
Assess if You’re In Money Trouble
Many do not realize, but they could be spending beyond their means and, therefore, they’re not financially stable. Before you can protect yourself from hits to your financial capacity, you at least have to know if you’re financially in trouble by checking for any of the following signs:
- Spending an amount exceeding your monthly income
- Cannot pay bills in full and on time and, instead, pay partially or ultimately miss payment due dates
- Frequently purchase with credit or cash advances
- Receive calls from lenders
- Receive notices of disconnection of your utility subscriptions
Find Ways to Lighten Your Monthly Obligations
If you’re any of the aforementioned, you need to be on your toes and seek ways not to normalize this because, if you do, you’re concocting for yourself a slow but sure way to your financial downfall. Before you bury yourself in a pile of debt, know that all you need to do is communicate with the agencies you’re indebted to and tell them that you’re in a tough time. For instance, you can arrange payment schedules and, if they’re lenient enough, partial payments with your creditors.
Liquidate Your Savings
To make your savings liquid means to convert them to forms that will make retrieval convenient and free of any loss later on. Therefore, it’s only wise to maintain a cash account as cash on hand is the most liquid asset you could access. Concerning this, securing at least three months’ worth of funds to pay for monthly obligations like insurance and your child’s tuition fees is also a healthy practice. Unknown to many, you can even negotiate the adjustment of your mortgage rates, perhaps with discount points, to give your wallet a breather.
Another way to keep your savings liquid with a guarantee of slow but steady growth is through short-term government bonds. Unlike volatile stocks, government bonds are not only backed by the government but mature longer hence having secured interest rate increases and the lowest risk among all types of bonds. On the other hand, it is advised to make higher-risk investments only if you have months’ worth of liquid funds.
Spend More Wisely
Figure out how you can cut corners by minimizing your utility consumption. If you’re used to leaving the air conditioning on even when they’re not as useful, times when it’s cool enough or when you’re not in the room, make it a habit to turn it off instead. The same goes with running if you’re so used to keeping it running while you brush your teeth. Or, look into whether you need to keep your landline phone connection or calling from your mobile phone would suffice and so you can request your landline’s disconnection.
Stick to a budget and learn to stop when you’ve reached your spending limit because that means you’re going to have to carve out part of your savings, which should be non-negotiable. Curb your impulsive buying tendencies. Be more conscious when shopping by drawing the line between your needs and wants. Buy essentials in volume as much as you can and take advantage of sales. Lastly, wean off your dependency on credit by paying with cash as much as possible.
Getting in trouble with money is more common than we know it but is avoidable. If there is a key takeaway from this article, it is living within your means. It’s a consistent and conscious effort to not spend excessively on luxuries and prioritizing our security for the long term.