How to Prepare for a Financial Crisis?
The economy is in a constant state of motion, which is especially noticeable if you live in a large, well-developed country. Recessions are much more common than you might think, so it's vital for businesses and individuals to be flexible enough to counter these occurrences.
In fact, a few years back, we had to deal with major financial uncertainties brought about by the COVID crisis. Even now, the US is directly and indirectly affected by the Russo-Ukrainian War. So, there will always be some danger on the horizon that can interfere with your short and long-term financial plans.
To circumvent these potential issues, we’ve created a list of tricks that can help you out in a pinch. Check them out!
Increase liquid savings
When things are going well, people invest in stocks and other investment vehicles. The logic behind this is that the economy is good, and as long as you're making market averages, you can significantly increase your wealth. Unfortunately, all of this changed during the financial crisis.
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Not only are the average stock profits lower during a crisis, but it's also much harder to get your money out. As the market isn't that flexible during an economic downturn, there won't be as many buyers for your assets. So, you'll either have to sell at a much lower price, or you won't be able to get your money out.
The problem is especially noticeable with retirement accounts and similar vehicles, where you even incur penalties. By transferring your assets into a liquid form, your business can stay afloat with minimal losses to value.
Create a budget
One of the first things that your financial advisor will suggest is to create a budget. While most people don’t stick to this sum, it’s still a good indication of your spending.
Another benefit of a budget is that you can allocate money to different activities and expenses. For example, you can break it down into several categories, such as food, entertainment, travel, and mortgages. That way, you can easily determine the most troublesome areas, which might help you reduce expenses in the future.
Look for good loans
Taking a financial loan is a hard pill to swallow. Nevertheless, there are situations where you might have to rely on other people and financial institutions to maintain your business. You might also need a loan for specific needs like kids’ education or medical procedures.
Whatever the case might be, you need to do your best to find the most suitable loans. Many people turn to hard money lenders in these situations, but you might also consider some other low-interest loans. We also suggest you take smaller loans just to survive the recession's duration. Otherwise, you would lose money as soon as the economy turns around.
Reduce monthly bills
As mentioned in the budgeting section, it's crucial that you cut down on any unnecessary costs. Most notably, you need to focus on recurring monthly expenses as they're the easiest ones to predict. That being said, it makes sense that the bills would be the first ones for revision.
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Check how much you spend on electricity, heating, water, and everything else. The best way to tackle the issue is by simply cutting down the consumption. However, you should also consider downgrading your plans (for example, internet and phone) and be frugal during the forthcoming period. Alternatively, if you're close to the end of a contract, consider switching to cheaper providers.
Depending on your particular situation, you might even have to drop streaming services. People nowadays spend a lot of money on Netflix, Disney, and other providers. So, this is another area where you can save money.
Pay credit card debt
When it comes to credit card debt, the biggest issue you need to tackle is interest charges. For some families, these interests are a major part of monthly spending.
By reducing your debt basis, you'll also incur much lower interest charges for the upcoming months. While this might be a tall task, especially if you're already starting to feel the impact of a recession, it will be well worth it in several months.
Do it yourself
One of the oldest tricks in the book is turning to manual labor when it gets tough. When things are going well, people tend to overspend on hairdressers, beauty salons, house repairs, refurbishments, and such. While you're not as good as a professional, you might still get the job done.
Focus on services that are too expensive as it is. If you have an aptitude for a certain skill or profession, try to build upon it. For example, if you're good with your hands, you might consider doing most of the manual labor around the house, including repairs.