Many financial crises are unavoidable. Redundancy, long term illness, or an accident can turn your finances upside down overnight.
Here, we explore several ways to prepare for a financial crisis which should help to reduce the impact, should it ever happen to you.
Take Control of Your Finances
Make sure you are fully aware of all your monthly expenditure. If you haven’t already, work out exactly how much money is coming in and out each month. Once you know these numbers, you can work out your disposable income.
It’s important that you have a full grasp of this, as it will also highlight if you’re in danger of spending beyond your means. This will then allow you to work out exactly how much you would need to put into an ‘emergency fund’ to cover all your monthly bills if you were hit with a financial crisis.
Minimize Unnecessary Expense
Monthly bills can be extremely costly, so try to minimize these essential expenses as much as possible. Shop around on comparison sites for better deals, such as cheaper energy tariffs. Martin Lewis, Money Saving Expert, states that although there is a price cap on all standard energy tariffs, “your maximum will vary depending on where you live and how much energy you use” so switching could still save you well over £100 per year.
There may be other monthly bills that you can reduce, such as your phone bill. Are you still paying the same amount for your phone contract even though you’ve paid off your handset? Can you switch your car insurance supplier to get a cheaper deal? By minimizing definite monthly outgoings, you can better prepare for any unexpected emergencies like a car repair or boiler breakdown that you need to pay for.
Reduce Your Debts
To put yourself in the best place to manage a financial crisis, you should take steps to reduce any debts you may have. If you owe large funds on a credit card, it is likely you will be paying large amounts in interest too, further increasing your debt.
One method that often helps is to set an affordable amount each month that will be allocated to any outstanding credit card debts. By having a regular, manageable outgoing, you will be making regular and consistent reductions to your debt. If you have multiple loans, it may be worth consolidating your debt into a single monthly payment to reduce the number of companies you owe.
It is worthwhile taking these steps to prepare for a financial crisis. Many of us optimistically believe that it will never happen to us, but unfortunately, many of these situations happen out of the blue, without warning. By taking control of your finances, minimizing monthly outgoings and reducing your current debt, you will be in a much better place should this ever happen to you.
What are you doing to prepare for a financial crisis?
