There are times when fate is not in your favor. Typically, unfortunate stuff almost always involves money or the lack thereof. Imagine, for instance, having to deal with an unexpected medical situation that calls you to spend a significant amount of money. Of course, this thing is something you cannot ignore.
A financial crisis may catch you unprepared. That is why it is vital to brace for such a situation that can spell trouble for your finances. Take note of these tips if you want to know how to handle a financial crisis.
Create an Emergency Fund
It is vital to have an emergency fund, no matter how you describe your current financial situation. Having a well-stocked emergency fund helps you to cover sudden expenses, such as a home repair or a medical issue. It can help you avoid hard-to-reverse financial problems resulting from having to deal with unexpected expenses.
Of course, the question from people who are considering creating an emergency fund is how much money should such a reserve contain.
The common suggestion is to have at least three to six months of expenses saved in your emergency fund. However, this number can be too much for some folks, and it might be better to invest such an amount of money instead.
Some financial experts will advise you to start small – at a minimum of $1,000 – and gradually increase it over time. Consider these questions when you are starting to build your emergency fund:
- What are my total average monthly bills?
- Will my emergency fund last long enough to support me or my family if I lose my employment or cannot work due to illness?
- Will my emergency fund be enough to cover my deductible for me to receive medical care without the risk of incurring debt?
By asking yourself such questions, you can determine the amount of money you need to start your emergency fund. You can also start saving $50 to $100 every month if you have qualms about not having enough money. Try to visit AimFinance if you need to learn more about how to build an emergency fund.
Plan for the Worst-Case Scenario
Consider having a financial plan for the worst-case scenario. This mindset is not about being negative but being practical. It is you hoping that you will not use the emergency fund, but, when push comes to shove, you will have money to pay for whatever emergency expense you need to settle.
Be sure to get term life insurance, health insurance, auto insurance, disability insurance, etc. While all these require you to sacrifice money for the time being, they can help you get out of a financial crisis later.
Your Lifestyle Should Conform to Your Earnings
Get wise with your money by living according to your means. Do not be like other people whose lifestyle does not conform to what they earn. They just want to show off that they have new things and are well-off in life. But, in truth, their finances are not in order.
Discipline yourself in spending your money on the things that matter most. You can save a significant amount of money if you do not splurge your earnings on unnecessary things.
Many people spend a big chunk of their earnings. The bad thing is that when an emergency occurs, they do not have enough money to cover such a sudden expense. So, live below your means and save your money in the bank!
Be Responsible in Handling Financial Emergencies
If you need to use a credit card to escape a financial crisis, know the risks associated with this option. You can explore other less risky alternatives, such as a personal loan. In Canada, getting loans and incurring credit card debts is prevalent among Canadians after a financial crisis.
Be sure you have a good credit score, so you can avail an affordable interest rate. Avoid bad loans because this option can get you into a debt cycle. And, remember, that using a credit card or getting a loan should only be your last resort if you do not have an emergency fund.
Create a Debt Repayment Plan If You Owe Money
What if you owe money due to a sudden emergency expense? Well, if you are in a similar situation, do not lose hope, but start calculating how much you owe and how to pay it back.
Determine your monthly income and how much you need to pay every month for your debt. You should also know how long it will take to pay the total amount you owe.
Sometimes there are financial emergencies that will befall your life. With this in mind, you should be prepared to prevent the problem from getting out of hand. Have an emergency fund ready and plan for the worst possible scenario. Read some nuggets of wisdom from financial advisors available online.