You have to make your money situation strong enough to survive a crisis. And before you think that it’s impossible because you are living from paycheck to paycheck, it’s not. That’s just an excuse that you use to justify your lack of savings. Because if you look at the current data, more people are saving despite the fact that the unemployment rate is rising.
The Bureau of Economic Analysis released a report that showed how the savings rate increased to 13.1% despite the number of people losing their jobs. Reports revealed that the savings amounted to $2.17 trillion.
You’ll begin to wonder – if job loss is happening everywhere, how can people afford to save more? Admittedly, the lockdown helped people save money. They couldn’t go out so entertainment and dining out expenses were among the funds that they saved. Most of the expenses were spent on necessities. But despite that, you have to admit that the current situation is teaching us a lot of things about how we should handle our money.
And it also shows that regardless of what you are going through, you can create a money situation that can survive any crisis. You just have to be committed to the task.
4 things you need to create a strong money situation
If things feel very hard right now, you can bet that this will not be the last one that you will go through. Take a look at the Millennials. They had to go through 2 difficult recessions. It can happen again and again.
But that’s not everything that you need to worry about. It’s not just the economic crisis that you need to overcome. There are also personal financial struggles that can compromise the stability of your finances. These include job loss, medical emergencies, death in the family, etc. Anything can happen and you have to realize that you are completely helpless. There are ways that you can prepare so the uncertainties in the future will not compromise you.
So how can you create a money situation that is strong enough to survive a crisis? Here are 4 things that you can do.
Have an emergency fund
Did you know that only 23% of the low-income household have an emergency fund that can help them through difficult situations? Apparently, the lower the income, the fewer chances that the household is ready with a rainy day fund. Imagine what will happen to these households if the current crisis drags out? What will happen to their families and how will they survive?
This is why you need to prioritize saving for an emergency. Just remember that an emergency fund is different from your savings. This is the fund that is specific to any unexpected event that you will encounter. And it has to be a real emergency. Things like job loss or a medical need that is a matter of life or death. You cannot use this fund to buy a birthday gift that you forgot about or to pay for a vacation that you feel will help recharge your batteries.
The higher the amount in your emergency fund, the more chances that your money situation will be strong enough to withstand a crisis. You can use it to pay for what you need when your source of income is compromised. Not only that, but this fund will also keep you from borrowing money to get through an emergency.
Have full control over your budget
Another thing that you must do is to have full control over your budget. This is more than just having a budget plan. You have to make sure that the budget plan you are following is updated and aligned with whatever is happening in your life at the moment. Sometimes, people have a budget but it still fails to improve their financial position because it’s not updated.
When they made the budget, it was based on a different set of income and expenses. Over time, our income and expenses change. We get a raise or we get demoted. But most of the time, the more frequent changes come from our expenses. This is especially true if there is a milestone in your life that you just went through – like getting married, parenthood, etc.
You have to account for the changes in your income and expenses because if not, your budget plan will be useless. This is the plan that you will rely on to give you an overview of your financial position. If it’s not updated, it will not serve its purpose. It won’t help you control your finances. And that will lead you to make mistakes that can compromise your money situation.
Have a tight lid on your debts
Your debts will have a huge effect on your financial position. No matter how much you earn each month, having a lot of debts can put you on shaky ground. But that does not mean you should avoid debt. Ideally, if there is a crisis, you should use it as a last resort. If you can find a way to pay for expenses in cash, that’s what you should do.
However, there are times when having one emergency crisis after another can deplete even your cash reserves. It is during these times when debt becomes justified. Also, if you will get rewards through your credit card purchases and it will save you money, then it makes sense to use credit.
Of course, this means you need to learn how to manage your debt. Just make sure you are using credit with a purpose and that you have a plan to pay it off. Letting your debts get out of control is the fastest way you can weaken your money situation.
Have an extra source of income
Finally, your personal finances can survive any crisis as long as you have multiple sources of income. This is the best way for you to protect yourself in case something compromises your primary source of income. You may be earning less but that’s preferable than earning nothing instead.
Having different sources of income will make your money situation more stable and secure. And if you can set it up so one of the sources is a passive income, then you won’t feel too exhausted despite having more income coming in. You also don’t have to worry about losing your job. That can take a huge stress off of your shoulder. It also allows you to focus on what matters – making your finances stronger and more secure.
How to maintain a strong money situation
While building a stronger money situation is hard, it is not the only thing that you need to do. Maintaining a good financial position takes work. You need to consistently make an effort. Otherwise, you might leave your finances compromised once more.
So what can you do to maintain the financial situation that you work hard to achieve?
Keep a strict emergency fund rules
The first tip involves your emergency fund once more. But this time, it’s more of how you should use it. Having enough emergency funds is crucial in protecting your money situation. You want to preserve the amount as much as possible. This is why you have to set strict rules that will guide you when it comes to using your emergency funds. Make sure it is not used for unnecessary expenses. That way, you will always have funds when a real emergency comes.
Keep saving money
You should also save as much money as you can. There are many ways you can save more money regardless of your financial situation. You can lower your expenses. Live a frugal life temporarily. Or you’ve been living extravagantly, you might want to tame it down a little. Downsize your lifestyle so you won’t be required to spend a lot of money each month. The less you spend, the more you can survive a crisis.
Keep applying the right financial habits
The last tip is to make sure you are applying the right financial habits. The income you earn and the debts that you have will not matter unless you learn how to manage your finances carefully. You can have a huge amount of debt but it will not threaten your money situation as long as you know how to use it wisely. The same is true if you live on a minimum wage. You can live abundantly and grow your finances despite your limited income. The key is to have the right financial habits like savine, smart spending, budgeting, etc.