The thought of being hit with a major negative event that could affect your finances, like a job loss, illness or car accident, can keep anyone awake at night. But the prospect of something expensive, and beyond your control, happening becomes less threatening if you’re properly prepared. This article will describe steps which you can take to minimize the impact of a personal financial crisis, avoid it or manage it properly.
1. Plan and Budget Well
Financial planning and budgeting are a good way to avoid financial crisis and upsets. You can sit down with a pen and paper and write out all your monthly or annual expenses, your income, any tax information, and anything else that affects your finances and get a much clearer sense of where you are financially. You can also use various computer programs to do the same thing. This is an essential step in getting on firm footing financially. You need to have a good sense of what is going on financially in your life in order to maximize your advantages and prevent confusion and monetary mishandling. The budget you write out need not be hugely involved, but it should cover all the basic areas of your finances and deal with expenditure versus income. It might also include investment ideas, ways to reduce costs, and auxiliary measures in case there is some unexpected financial trouble.If you don’t know exactly how much money you have coming in and going out each month, you won’t know how much money you need for your emergency fund. And if you aren’t keeping a budget, you also have no idea whether you’re currently living below your means or overextending yourself. A budget is not a parent – it can’t and won’t force you to change your behavior – but it is a useful tool that can help you decide if you’re happy with where your money is going and with where you stand financially. (Do you have enough savings to cover the costs of unforeseen crises? Learn how to plan ahead in Build Yourself An Emergency Fund.)
2. Overcome the “If only I had more money” attitude.
Although it’s natural to want more money when you’re experiencing financial problems, it’s important to keep in mind that simply getting more money won’t solve your problems. You could have a lot more money fall into your life (from a large tax refund to a generous Christmas gift) and yet still get into financial trouble if you don’t change the way you manage money. What’s important isn’t how much money you make, but what you choose to do with the money (of any amount) that you have. So shift your focus from changing your income to changing yourself. Ask God to show you what unhealthy behaviors you need to change (such as over-spending, under-planning, over-borrowing, and under-saving) and to help you change those behaviors by changing their underlying attitudes. Take personal responsibility for the financial mistakes you’ve made in the past, and learn from them. Choose to forgive yourself for your mistakes, and to forgive other people who have made financial mistakes that have impacted your life. Look forward to a healthier financial future.
.3 Prepare to Minimize Your Monthly Bills
You might not have to do it now, but be ready to start cutting out anything that is not a necessity. If you can quickly get your recurring monthly expenses as low as they can be, you’ll have less difficulty paying your bills when money is tight. Start by looking at your budget and see where you might currently be wasting money. For example, are you paying a monthly fee for your checking account? Explore how to switch to a bank that offers free checking. Are you paying $40 a month for a landline you never use? Learn how you might cancel it, or switch to a lower rate emergency-only plan if you needed to. You might find ways you can start cutting your costs now just to save money.
For example, are you in the habit of letting the heater or air conditioner run when you’re not home, or leaving lights on in rooms you aren’t using? You may be able to trim your utility bills. Now might also be a good time to shop around for lower insurance rates and find out if you can cancel certain types of insurance (like car insurance) in the event of an emergency. Some insurance companies might give you extension, so look for the steps involved and be prepared.
4. Closely Manage Your Bills
There’s no reason to waste any money on late fees or finance charges, yet families do it all the time. During a crisis of a job loss, you should be extra studious in this area. Simply being organized can save you a lot of money when it comes to your monthly bills – one late credit card payment per month could set you back $300 over the course of a year. Or worse, get your card canceled in a time when you might need it as a last resort.
Set a date twice a month to review all your accounts so you don’t miss any due dates. Schedule electronic payments or mail checks so your payment arrives several days before it is due. This way, if a delay occurs, your payment will probably still arrive on time. If you’re having trouble keeping track of all your accounts, start compiling a list. When your list is complete, you can use it to make sure you’re on top of all your accounts and to see if there are any accounts you can combine or close.
5.Overcome the “It won’t happen to me” attitude.
It’s tempting not to think about emergency expenses until you must deal with them, but since life is unpredictable, you’ll inevitably have to deal with expenses that you didn’t expect – from car or home repairs to hospital bills for emergency room visits. Rather than go into debt when emergency expenses hit, you can manage such expenses well if you’ve saved for them in advance. Work to set aside at least three to six months of income in an emergency savings fund. As you do, keep in mind four different financial priorities: regular bills (which are both urgent and important), goals (expenditures you want to plan for within the next year that are important but not urgent, such as vacations), leaks (impulse purchases that seem urgent but aren’t important), and wastes (expenditures that aren’t either urgent or important, such as money spent on alcohol or gambling). Anticipate the approximate financial cost of important purchases you want to save money for, and then set specific savings goals for each of them.
6: Overcome the “I’ll fake it ‘til I make it” attitude.
This attitude leads you to buy things simply because they’ll make you appear wealthy, rather than for their intrinsic value. Pray for the ability to overcome the psychological needs that may be fueling this behavior in your life (from wanting a personal sense of accomplishment through what you buy, to trying to impress other people socially through an image of wealth). Practice developing a contented attitude by regularly focusing on the good aspects of what you already have and diverting your thoughts away from what you don’t have. Ignore advertising as much as possible; instead, discern what you want for yourself, based on your own values.
7: Overcome the “I can’t afford it” attitude.
If you feel guilt or shame when spending money, despite the fact that you actually can afford what you’re purchasing, you may be suffering from this attitude of excessive deprivation. Recognize that it’s okay to indulge in purchasing expensive items and experiences that are meaningful to you and won’t put you in debt. If your frugality is negatively impacting your life or your relationships with other people, ask God to help you become more generous. Then start a habit of giving more to others through your church and charities, and buying some things you’d especially enjoy for yourself.
8: Change the self-talk in your mind.
Honestly examine the thoughts that run through your mind about money and challenge them regularly to discern whether or not they reflect biblical truth. If not, intentionally replace inaccurate, unhelpful thoughts about money with true and healthy thoughts.
9: Stand up to pressure to make unhealthy financial choices.
Pray for the willpower you need to resist spending money irresponsibly again, and whenever you’re tempted, ask God to help you in that moment. Develop strategies to help you successfully manage your money well, such as closing every credit card except for one and paying mostly cash for your purchases. Remain committed to lasting change.
10: Create a spending plan.
Plan how you intend to spend, give, and invest the money you have. This is similar to a budget, but rather than focusing on your financial constraints, a spending plan focuses on your financial goals. Include your predictable monthly expenses (such as groceries and utility bills), your predictable non-routine expenses (such as vacations and new clothes), and your unpredictable expenses (emergencies).
11: Pay off debt.
Work diligently to pay off all of your debts by focusing on one debt at a time. List your debts in order of balances owed (regardless of interest rates), and then work your way through the list, paying off the lowest balance loans first and moving on – one by one – to the highest balance debts until they’re all paid in full.
12: Reduce your expenses going forward.
Be creative about reducing your expenses as much as possible, from using coupons to buying different items during the seasons they’re on sale.
13. Hold yourself accountable.
Track your expenses regularly and study where your money is going so you can keep adjusting your spending to reflect your values.
14. Find the Least Expensive Basic Items
Purchasing and using the least expensive items can help reduce your budget considerably. This can be anything from the car you drive to the way your heat your house to the food you buy to the insurance you have. Basic items are things that you need on an ongoing basis. This may seem like a “no brainer” but it is quite possible that you are not saving as much in your ordinary expenditure as is possible. You may be able, for instance, to find excellent used clothing rather than going to a discount store and buying cheaper clothing that will wear out faster. Or you may be able to find cheap insurance of one sort or another that is perfectly adequate, such as health insurance. The way you save money says a lot about how well you understand how and where to save it. Try finding deals in unexpected or less accustomed areas of your finance and you may find that you can save more than you thought.
15. Look for Ways to Earn Extra Cash
Everyone has something they can do to earn extra money, whether it’s selling possessions you no longer use online or in a garage sale, babysitting, chasing credit card and bank account opening bonuses, freelancing or even getting a second job. The money you earn from these activities may seem insignificant compared to what you earn at your primary job, but even small amounts of money can add up to something meaningful over time. Besides, many of these activities have side benefits – you might end up with a less cluttered house or discover that you enjoy your side job enough to make it your career.
16.Start a financial journal today for how you will begin taking these steps and keep a log of how you do! Don’t beat yourself up when you fail, get up and try again. Financial wisdom takes time to practice and learn.
Life is unpredictable, but if there’s anything you can do to stave off disaster, it’s to be prepared and be careful. With the right preparation, you can prevent a financial crisis from ever becoming a crisis and only have to deal with a temporary setback.