The pandemic has caught a lot of people off-guard that is why it makes a lot of sense to financially prepare for another crisis. The thing is that no one has an idea of what will happen next. It could be sometime before another crisis comes. It is also possible that while everyone is still reeling from the effects of COVID19, a new crisis can come in and present new problems.
One thing you need to remember is that it is not the first time a crisis has swept across the world. Just like the 2008 Great Recession wiped out $8trillion in stocks between 2007 and 2009 according to Washington Post. And the pandemic at the moment because of the coronavirus will not be the last. A different strain of the virus can mutate and pose a new threat. It is also possible that an economic problem can bring a different set of challenges to people around the world.
There is no way for anyone to know what will happen in the future. But it does not mean that you cannot take proactive steps and financially prepare for another crisis in the future. Not knowing what will happen tomorrow is not an excuse. Yes, you need to enjoy and live in the moment but you also need to prepare for challenges that tomorrow brings.
Just like how you would be saving for your retirement or your children’s college expenses, you need to do the same thing in preparing for future emergencies. It does not have to take over your present life but you need to slowly prepare for it. The key here is consistency so you can slowly prepare for future emergencies.
Keep on saving money
The most effective strategy you need to work on is strengthening your reserve fund. If you want to financially prepare for another crisis, you have to build up this financial cushion. Reserve funds normally consist of two types of savings – an emergency fund and a rainy day fund. These two complement each other and are used in different scenarios.
Your emergency fund is meant to cover for big emergencies such as job loss. In order to ensure that this fund is intact, you have your rainy day fund. This is meant to absorb smaller emergencies that could nip away at your emergency fund. It ensures that when the time comes that you need to use your emergency fund, it is still intact.
The main goal is building a habit through consistency. You can choose to automate this process by having a certain amount deposited into an account for your reserve fund. One thing that can make it better is to choose a high-yield account to put your reserve fund. This helps you earn a higher interest rate which can help you grow the fund over time.
Improve your credit score
As you financially prepare for another crisis, it also helps to look at your credit score. This is because you might find the need to take out a loan in the future when emergencies happen. It can be a personal loan or even applying for a new credit card. When this happens, it helps to have a high credit score under your name. It improves your chances of being approved for the loan.
It does not only help you get fast approval for your loans, it can lower the payment you need to make as well. A high credit score proves to potential lenders that you know how to manage your finances. It is also a good indication that you take your debt payments seriously. Lenders and banks will be more inclined to approve your application.
In times of emergencies, it makes a big difference if you are able to take out a loan or get approved for a 0% credit card. Having this option can help you get through another crisis with your finances taking a minimal hit. You do not have to resort to quick-approval loans that come with a high-interest rate and short repayment period.
Pay down and clear out your credit card balance
It is also a good idea to pay down your credit card balance as you financially prepare for another crisis in the future. This is because your credit cards can be used to help you manage your way through an emergency. The ability to repay back with just a minimum amount of what you charged can be a big help. It can free up your budget so you have enough to cover the most basic needs. CNN shares that Americans are on the right track as credit card balance fell down to less than $1 trillion this year.
On top of this, you would also have a tough time paying back your credit cards when you are going through an emergency. This is understandable but this can result in fees and penalties on top of interest payments for months to come. If you are already trying to make do with a tight budget and you get hit with higher credit card payments, it throws your budget off-course. This is the reason why you might want to aggressively pay off your credit cards when possible. You also save money which otherwise would simply go to interest payment.
Identify a side hustle
One of the best strategies to financially prepare for another crisis is to identify a side gig you can spend time on. This will help you bring in extra income into your budget every month. It helps also if you can identify a hobby you can tap for your side gig. This now becomes an income-positive hobby you can work on. It is also a big plus that you get to work on something you already love doing.
When emergencies hit, your side hustle could mean the difference between putting food on the table or charging your food expenses on your card. The income your side hustle gives you could help you make ends meet. This can also open up possibilities giving you ideas that you can pursue in the future. It feels good to wake up every day and work on things you are passionate about.
Get your retirement plan back on track
There is a good chance that as you try and manage your finances during this current health crisis, you might have tapped into your retirement fund. It can be dipping in your 401k savings or using what you were supposed to save for retirement to pay for basic needs. Choosing to do this is entirely acceptable considering the situation. But this could have thrown your retirement planning off-course.
If you want to financially prepare for another crisis, it would be a good time to start getting back on track with your retirement goal. Start putting money back into your retirement fund. If possible, try and max out your 401k contribution every year. This is helpful especially if your employer has a matching program for your retirement savings.
Track your spending to financially prepare for another crisis
One of the best strategies you can take on to help you strengthen your finances is to have a systematic and effective way of tracking your expenses. You need to be proactive and make sure that you spend within budget. If possible, you can also explore living below your means. This frugal approach to spending can free up more funds you can save for emergencies.
Frugal living is choosing to spend less than what you have already budgeted for. To make this possible, you need to be creative. Rather than spending for an expensive night out with your family, why not cookout in your garden and camp out? You can set up a movie night or just a simple bonfire to spend quality time with your family. You get to enjoy each other’s company at a fraction of the cost.
It is tough to even think about how you can financially prepare for another crisis when the current one still on-going but it can help you become more resilient. As the economy and starts to recover with businesses opening up again, you can take advantage of this and start preparing for the future again.