The pandemic brought most of us to our knees when we were basically left to fend for ourselves. With an economy that essentially stopped in its tracks, job loss and maxing out credit cards became a brutal reality for many.
As a result, American household debt hit a record $16.9 trillion at the end of 2022, up $2.75 trillion since 2019, according to the Federal Reserve. In addition, Americans owed $927 billion on credit cards as the pandemic came to an end.
Just when we thought there was light at the end of the tunnel, historic inflation reared its ugly head in the spring of 2021. Growing demand for goods and services bumped up against pandemic-related supply issues and inflation rose well above a 2 percent annual rate.
Soon after that, experts began throwing around the words “downturn” and “recession”. People struggling with debt now found themselves drowning in it.
No one knows what the future will bring. But one thing is certain, personal finance management is more necessary than ever in today’s volatile economy.
5 tips to help shield you from a future economic crisis
You can never go wrong by being overly prepared for anything life throws your way.
Here are 5 tips we suggest you start doing now to keep your finances on track in good times and in not-so-good times.
1. Save every dollar you can
Having a financial cushion can help you avoid stress, panic, and a monetary crisis should the world once again turn upside down. Look into your savings to gauge if you have enough to tide you over another unexpected event.
In case it is lacking, there are many ways to eke extra bucks from your monthly earnings. In fact, you might be surprised how easy it can be to cut expenses, especially when you know it is setting you up for future financial success.
For instance, brewing coffee at home, cutting premium channels, and canceling your gym membership are simple ways to trim back without too much sacrifice.
Put the savings into building an emergency fund instead. Most financial experts recommend socking between six and 12 months of living expenses in the bank. If you have a stable job that produces a steady income, six months should be enough.
However, if your work is intermittent or you get paid on commission, try saving closer to 12. It is important to keep the funds in a liquid account for immediate access. An added bonus: you can find a high-yield savings account today and get a great return on your money.
2. Create an emergency fund
An emergency fund is a savings account that is specifically set aside for large unplanned expenses or financial emergencies like medical bills. Everyone should have one. But in a nationwide Bankrate poll, 26% of all Americans have no emergency savings whatsoever.
If you are not financially prepared for life’s surprises and you are like most Americans, you will reach for that credit card and worry about paying it off later. But that is not how credit cards work, and if you don’t pay the full monthly balance, you are incurring interest on top of your emergency expense.
3. Track your expenses with a budget
A budget enables you to see how much money is coming in on a monthly basis versus the amount going out. If you are spending more than your earnings, it is important to adjust your budget accordingly.
By knowing the total of your monthly expenses, you can cut costs to avoid accruing debt. If you manage to have extra funds at the end of the month, they should be deposited into your emergency account. That way, you would have the means to better deal with a world crisis or a personal hardship.
Using a budgeting app makes it easy to keep track of your spending and identify areas where you can cut back. Mint.com, the most uploaded personal finance app, enables you to view all your accounts in one place so that you know where you stand at all times.
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4. Pay down credit card debt
Being in debt is always a disadvantage, but a challenging economy can bring on a never-ending cycle of interest, interest, and more interest.
As rates have gone up exponentially, credit cards are charging an average of 20 percent. If you are only covering monthly minimums, you could end up paying hundreds or thousands more in the long run. Put that credit card away so you don’t incur additional debt and address the issue at hand as soon as possible.
If you feel like you’re in over your head, debt settlement could offer the guidance and support you need. With this method, an expert will try and negotiate on your behalf to help you pay off your creditors. National Debt Relief could help you resolve your debt in as little as 24-48 months and their debt specialists will personally and professionally support you throughout the process.
5. Lower your monthly expenses
There are always ways to cut expenses. All it takes is the right strategy and a bit of determination:
- Eliminate or reduce unnecessary expenses. Sorry, but going out to your favorite restaurant every weekend is not a necessary expense. Cut visits down to once a month so that you save money while not feeling deprived. The same goes for updating last year’s phone to the newest model and other activities and items that could be considered luxuries.
- Shop for cheaper insurance. If you do your homework, there’s a good chance you’ll find a lower rate for comparable personal and auto insurance. Bundling the two with the same company can not only save you money through a discount, but it’s one less bill to worry about paying on time.
- Save on utility costs. The obvious way to save on electricity, water, air conditioning, and heat is simply to use less. Keep your house cool or warm when you’re home and adjust the temperature when you’re away. In addition, shut off any unnecessary lights before you walk out the door.
Across the United States, we use more than one trillion gallons of water each year for showering, according to the EPA. The average shower lasts 8 minutes. Cut it down to 5 and you will save energy and water, which equates to dollars and cents.
- Cancel memberships or subscriptions. If you’re no longer into gardening, cancel your subscription to Home & Garden. The same goes for streaming services and gym memberships. If you haven’t used a product or service in a while, you are wasting money that could go toward savings.
6. Avoid more debt
If you can’t pay for something with cash or cover the charge when the bill comes due, do not purchase it unless it’s an emergency. You don’t want to waste your limited funds on interest.
If impulse shopping is your guilty pleasure, leave the credit card at home and bring cash or put the amount you need on a debit card. Do not use your savings to pay off your debt! That defeats the purpose of being financially prepared for anything now and down the road.
The key to surviving any financial issue
When the pandemic hit, people with savings took a lesser hit than those who struggled without a safety net. That is why it is vital to build up an emergency fund.
By planning ahead, you can be prepared to survive any financial crisis. If nothing happens, there is no harm done by cutting or lowering expenses. Especially since inflation is taking a bigger bite out of everyone’s wallet these days.