Proper budgeting in a crisis can help you feel more in control of your money and make it easier to save cash for your goals. The trick is to find a way to track your finances that works for you. Douglas Welch, a loan agent from lakevieworegon.org and an author of a telegram channel about money and finances, wrote an article about his plan for handling personal finances in a crisis of 2022-2023. Read about how to create a financial safety cushion and earn extra money during the global financial crisis.
Pay Off Financial Obligations and Start Saving
If you have loans or other debts to banks, it’s time to pay them off promptly. The thing is that because of the crisis, the risks of losing sources of income increase. Pay off the most expensive loans first, for example, start with payday loans.
Major expenses, including the purchase of equipment, should be postponed for calmer times. One of the main tips is to maintain a personal budget based on the funds that you own.
If you have expenses for renting or paying for an apartment, you should immediately calculate the budget for 2-3 months in advance and set aside the required amount.
Take Only Short-Term Loans
In tough times, financial experts recommended taking small payday loans only for a short period of time – and only when you really need this money. This is one of the most common ways to get fast cash for any purpose. A longer loan term means accumulating more interest charges over time, and it will take longer to become debt-free. When the situation stabilizes, you may apply for a long-term loan.
When you need cash quickly, you may use payday loans as a source of short-term financing. Consider using online platforms that have high approval rates and work with any credit. Payday loans come with higher interest rates than personal loans from banks and they may seem quite expensive. However, the size of loans is usually limited to $1,000, and the loan term does not exceed a month. Therefore, the overpayment is relatively small.
Put Your Savings to Work
Do not keep savings at home or in a zero-rate account, otherwise, inflation will devalue them. You can open a savings account at rates that cover inflation.
Savings accounts differ from deposits in that banks charge interest on them monthly, which means that the owner of such an account will not lose much if he or she decides to withdraw money.
You can use a credit card with a long interest-free period, and keep free money at a high interest rate in a savings account. The main thing is not to forget to pay off the debt on such a credit card before the end of the grace period.
Improve Your Spending Habits
Financial planners recommend getting in the habit of planning your monthly expenses. Once you’ve received your paycheck, take some time to split the amount you receive between mandatory and non-essential expenses.
- payment of utility services;
- buying food;
- purchase of necessary medicines;
- training costs.
- spontaneous purchases;
Decide how much you need for each mandatory expense item. The remaining amount is recommended to be set aside for the purchase of necessary clothing, shoes and other important but not permanent expenses in the future.
When planning a trip to the grocery store, make a list of must-haves and try to stick to it strictly. Foods that can be stored for a long time can be bought on days of promotions and discounts.
Remember that “a penny saved is a dollar earned.” You can save 10% – 15% per year from each salary, and at the end of the year you can easily afford a good rest.
Find a Source of Additional Income
Many Americans have one job. If something happened to the current employer, revenue would drop to zero. The stash, of course, will help to survive the difficulties of the first months. But if your profession has become less in demand during the crisis, it will be very difficult to look for a similar position.
You’d better search for an alternate source of income right now. And it’s not about a complete change of activity. Any part-time job will make it easier to manage your budget.
A good way to make money is to sell old things. And there are several advantages here. First, you will get rid of the trash that takes up space in the house. Secondly, you will get additional income. But do not let the money go for everyday expenses – postpone it for the future.
Build Your Emergency Fund
Analyze your income and expenses for the last six months. They can be tracked using mobile banking apps. Look at what was spending the most money and whether you can cut spending.
You should make a list of short-term (for 1 month) and long-term expenses (for six months). This will help you roughly understand whether your income is enough for all the planned things.
It is believed that the size of the “airbag” should be equal to 6 salaries so that a person may not work for six months and maintain a lifestyle.
To accumulate this amount, you need to form the habit of saving money. It is difficult to immediately cut off even 10% of income into reserves. Therefore, you can start with 1%. After a month or a quarter, increase the amount to 2%, 3%, and so on. In the bank app, you can set up automatic debiting of funds.
If you are tempted to spend your savings on an “urgent” purchase, it is better to transfer money to an account in another bank that you rarely use.
Try to make even such “passive” money work. Choose a deposit or savings account with the best interest and term. You can distribute money between deposits with short and long terms, so that at any time you can withdraw money and not lose all interest.
Find the Right Budget Tool
No matter what financial situation you have, you can find a budget tool available to suit your budget and needs. Of course, you can choose a more traditional option and use a simple calendar and calculator to plan your income and expenses. However, financial experts recommend that you invest your time in an up-to-date approach — using a budget app. Their convenience and intuitive interface have already attracted millions of users and modernized the way they manage their money.
Budget apps offer a brand-new way to improve your finances. If you previously used short-term relief, such as a payday loan, a budget app can help you track wealth and spending, as well as manage and prioritize your debts. Payday loans from reliable lenders are great options if you need cash immediately without the paperwork often associated with bank lending. But be sure to repay the payday loan debt before any others.
Things You Should NOT Do in Times of Financial Crisis
Panic is the first feeling that arises when realizing possible difficulties. It is panic that plays a bad joke on us – it makes us run headlong to the store and buy essential goods for the last money.
Don’t panic! All crises are temporary, and your life will return to a stable course over time.
Try not to get into a debt trap. During a crisis, banks are under enormous pressure and are trying in every possible way to attract customers by offering low interest rates on loans and other benefits. Not worth it! Evaluate whether you really need to borrow money or you can do without it. If possible, postpone large purchases for a calmer financial period.