What Can You Do to Avoid a Financial Crisis?

There is a variety of events that could lay waste to your finances, including jobs loss, serious illness, car accidents, market meltdown, and effects of other forces beyond your control. These unsettling notions keep us awake at night and they should also prompt us to take action during the day.

Yes, you might not be able to completely avoid the turmoil, but you can certainly minimize the negative impact. At the same time, you should know that a crisis also occurs when budgets perish by a thousand little cuts. So, mind your everyday spending habits. Here are some steps that should empower you to obtain financial security and stability.

The craft of budgeting

Budget is the cornerstone of all your efforts. In a nutshell, you need to know exactly how much you are earning and spending each month. This simple equation helps you figure out whether you are overextending financially or living within your means. Moreover, once you see everything in black and white, you are able to trim spending in areas where you are not being overly frugal. You have various personal finance apps to turn your smartphone into an ultimate budgeting tool.

Next, make an effort to cut the expenditures where it matters the most—in major areas like entertainment, food, transportation, utilities, clothes, and housing. For instance, evaluate how energy-efficient your household is. Due to issues like unwanted temperature loss or plumbing leaks, you could be pouring hundreds of dollars down the drain. Likewise, stop eating out often, reconsider your internet plan, cancel magazine subscriptions (go online instead), and see if you really need that landline.

Get organized

It is astonishing how many financial woes stem from chronic lack of planning. You need to turn a new leaf and carefully manage your monthly bills. This will help you steer clear of unnecessary fees and finance charges. Thus, take your time every month to review due dates. Never miss a credit card payment because of your own negligence. You can schedule electronic payments or mail check to cover obligations before they are due. Again, it is crucial to make records of everything, either with good old pen and paper or apps.

Furthermore, problems like debt always need to top the list of priorities. Interest rates can bite off a big chunk of the budget over time. So, make sure you are not overpaying your debt. Negotiate a debt restructuring or ask for better terms. Then, get prepared to pay it off as soon as possible, using various tried-and-tested tactics. If you need to consolidate your debt, shop around for best deals along the lines of small, low rate personal loans. Set yourself up nicely for a period of prosperity.

Save for the rainy day

Having a saving and/or emergency fund is paramount. It is highly recommended that you set aside a fixed percentage (10% of income tends to be a sweet spot) every month. At every moment, you should be able to cover a few months’ worth of living expenses from this source. A three-month expense cushion is a bare minimum. In case you have a major financial burden on your shoulders, such as mortgage and child allowance, you might want to have even more money piled up.

At one point, you may have enough savings to invest. Note that one of the best ways to shield your budget is to maximize liquid savings. Cash accounts, such as checking, short-term government investments, and certificates of deposit are a prime example. Unlike stocks and other financial instruments, the value of these assets does not fluctuate in the wake of a market crisis. What is more, when withdrawing money, you can avoid early withdrawal and incur tax penalties. Whatever path you chose to go down, stay in control every step of the way.

Get the financial house in order

Like it or not, you have to hope for the best, but brace yourself for the worst. To improve your financial picture and decrease your vulnerability, embrace a proactive approach. Come up with a sound action plan: formulate a budget and keep the spending in check. Assess where you stand right now and set up goals for the future. Be extra studious in the area of monthly bills and attack menaces like debt right away. Strive to live slightly under your means. When the times of trouble come, you will be far from having your hands tied.