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10 Ways to Make Sure You Never Have to Face Financial Crisis

10 Ways to Make Sure You Never Have to Face Financial Crisis

Samuel Johnson once said, “A man who both spends and saves money is the happiest man, because he has both enjoyments.” He couldn’t have been more right. It’s not enough to earn money. It’s equally important to spend and save money wisely. On one hand, we need to spend money to fulfill our needs. On the other hand, if money runs through our hands as soon as we get it, we are in the state of perpetual deprivation and are unable to save anything for the future.

Many of us have to face a point in life at which we are in a terrible financial condition. Your savings could be low, you may have recently (or not-so-recently) lost a job, or you could lose your savings due to battling illness. There are so many possible paths to arrive at that dreadful situation, but we can surely avoid it with proper planning and forethoughts. Below are 10 ways to help you make sure you never have to face a financial crisis.

1. Maximize your liquid savings.

Liquid assets such as cash in hand, cash in currents, saving and money market accounts, and certificates of deposit are our most important financial assets to ensure financial safety. The value of these assets doesn’t fluctuate with market conditions, unlike stocks and index funds, and we can have them at our disposal any time we want, without any financial loss. Maximize your liquid savings. It’s very important to not invest in stocks or other higher-risk investments until you possess several months’ worth of liquid cash.

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2. Keep record of all your earnings and expenses.

The principal reason people face a personal financial crisis isn’t that they do not earn enough but that they don’t save enough. It’s easy to advise someone to save, but equally difficult to actually save something on your own. However, much of the trouble can be spared by keeping a record of all of your earnings as well as expenses. Keeping track of money coming in and going out will help you know if you are overspending or living within limited means. This will help adjust your expenses to align with your income.

3. Prepare your monthly budget and live by it.

When there is no bar set for tour expenses, you are more likely to end up overspending. Monthly budgets prepared at the end of the previous month can help you balance your finances. Prepare a well-organized monthly budget clearly specifying the budget for food, rent, recreation and so on. But remember, there’s no point in making rules if you can’t live by them. You also need to live by your monthly budget allocation if you want to ensure sound financial health besides setting it.

4. Keep your possessions in good condition.

Keeping your possessions in good condition is another effective way to avoid financial crisis. Keep everything you possess, from your car and household utensils to electrical and electronic appliances, in proper working condition. It costs much less for routine maintenance compared to the price you have to pay when they stop working completely, either to replace them or while repairing them. Investing small amounts to keep your possessions working will reap greater rewards in the long run, as money not spent is also money earned.

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5. Stay healthy.

Just as routine maintenance of household appliances helps to save significant amounts of money, maintaining your body also helps the cause. Most often we visit doctors only when the problems we’re facing have become severe. This traumatizes the body and requires significantly higher medical costs. With regular exercises and healthy habits, along with frequent medical checkups, you can pretty much avoid the possibility of major financial setback on the back of substantial illness.

6. Pay off your debts on time.

The best advice would be to never take any debt. But it doesn’t mean that your financial condition is doomed forever if you have taken debts. The first concern of any debtor should be to pay off all debts in full. Having existing debts doesn’t only distress our brains continuously, but also means that we can’t afford further debts, which would be necessary in the face of the adversities. So plan wisely and allocate a portion of your monthly budget to pay off the debts.

7. Safeguard against job loss.

Losing a job is the major event that leads a person to financial crisis. With the loss of job, a person doesn’t have any money to use, particularly if the person has never spared any thoughts for saving before. Safeguarding oneself against potential job loss is a chief way to avoid financial crisis. This could be done via unemployment insurance from your office or the purchase of a private unemployment insurance on your own. You can also find an alternative source of income besides your primary job.

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8. Save a portion of your earnings every month.

Saving shouldn’t be thought of as a luxury, something that you do when you feel like it. You should cultivate it as a habit. There’s no better way to save than putting away a certain amount of your earnings every month. The popular 50/20/30 rule suggests you allocate 20% of your monthly earnings for things like debt payments, retirement funds and savings. If you’re not in any debt as of now, saving 20% of your monthly income would be a wise idea. However, even if you’re in debt, save at least 10% of your earnings, as you need liquid cash in hand in case anything serious happens in future.

9. Try to minimize your monthly bills.

Just because you earn enough and are not facing any financial setback as of now doesn’t mean that the case will be the same forever. Try to minimize your monthly bills before the alarm bell rings. The focus for minimizing the monthly bills should be on cutting out unnecessary expenses as soon as possible. Look over your expenses and find out possible ways to deduct them. You could be turning on your heater or air conditioner even when you’re not home. Simply turning those appliances off when you’re not home will help reduce energy bills and thus, the monthly bills, significantly.

10. Spend wisely.

“Every penny saved is a penny earned.” You won’t be financially secure all the time, unless you are wise enough to spend wisely. Spending wisely is an art in itself. There are several techniques to spend wisely. One is to abstain from buying things you are hardly going to use. The other could be to compare prices amongst multiple vendors and go for the best deal. This could even mean spending money as an investment for the future, as the money you spend today could generate you further capitals tomorrow.

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Featured photo credit: money career upstairs/Anatoly Tiplyashin via fotolia.com

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Co-Founder, Siplikan Media Group

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Last Updated on July 10, 2020

The Definitive Guide to Get out of Debt Fast (and Forever)

The Definitive Guide to Get out of Debt Fast (and Forever)

Debt can feel crushing, like a weight that is always weighing you down. Looking at those numbers, it can feel as if you’ll never get out from under it. However, if you really want to learn how to get out of debt, it is possible with a great deal of focus and self-control.

Getting out of debt isn’t impossible. Like any big goal, all that it takes is an action plan to identify where you are and creating a plan to zero out your debt.

Identifying All of Your Debts

The first part of paying off your debt is getting a complete picture of what you owe. When you have everything written out in front of you, it makes it much easier to create an action plan. Depending on how much you owe, it might also help you realize it’s not as bad you might have originally thought.

Here’s how you can get started identifying your debts:

1. Own Your Debt

Before you start identifying all of your debts, take a moment to process that you have debt but want to get out of it.

Forgive yourself for any past mistakes, missed payments, or overspending. It might be painful to accept how much debt you have at first, but you must own it.

2. Make a Debt Tracker

It’s astonishing how few people ever created a tracker to understand their total debts. Most likely, it comes from not wanting to accept the guilt of having debt, but, if avoided, it can make it nearly impossible to get out of debt.

Open up a new Google or Microsoft Excel sheet and list out all of your debts. Start with the name of the creditor, interest rates, total balance, loan term length (if any), and the minimum amount due each payment. This will include student loans, credit cards, and any other type of debt owed.

3. Get Your Debt Number

Once you’ve made your debt tracker and taken the other steps, identify your total payoff number. This is crucial, as you will have a starting point and a clear goal that you are trying to achieve.

Prioritizing Your Debts

All debt is not created equal. It’s imperative to understand that there are different types of debt.

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1. Understand Bad and Good Debts

Bad debts are usually paying for things you want instead of always need. While there might be some emergencies that max out your credit cards, often times it’s excessive spending[1].

There are three main types of bad debt:

  • Credit Card Debt: The average American household owes over $16,000 in credit card debt!
  • Auto Loan Debt: According to CNBC , the average auto loan in the US is $30,032!
  • Consumer Loan Debt: Consumer loan debt isn’t as common as credit card and auto loan debt, but it’s still considered bad as interest rates are usually between 10-28%.

Good debt is identified as investments in your future. Here are three common types of good debt:

  • Student Loan Debt
  • Mortgage Loan
  • Business Loans

2. Decide Which Debt to Pay off First

Once you know each type of debt and their interest rates, you can begin to pay off debt quickly.

Focus on paying off bad debt first, regardless of if it is a credit card or auto loan. Start by paying off the loan with the highest interest rate first.

If you have several credit cards with different interest rates, you want to focus on the one with a higher APR. You will actually save more money by eliminating the card with the highest interest rate.

3. Don’t Pay the Minimum Amount

Paying the minimum amount digs you into a hole as interest rates will offset your payment. Even a small amount more than the minimum can help you pay off debt much faster.

Removing Obstacles to Pay off Debt Quickly

Creating a debt tracker and prioritizing a plan is simple, but avoiding temptation can be difficult.

1. Set a Reminder to Track Your Debt

“If you can’t measure it you can’t manage it.” -Peter Drucker

It’s so important to track your debt to ensure that you get it paid off quickly. Similar to working out and measuring your results, you need to track your debt constantly. Start with a weekly reminder, where you sign on and log your updated number. Did you increase, decrease, or stay the same?

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Regularly tracking your student loan balance can be incredibly motivating, as well. You will get a huge confidence boost each time you see your total debt amount decreases.

Set weekly and monthly goals so you can have short term wins and keep the momentum going.

2. Hide Your Credit Cards

If your biggest debt is credit cards, you need to eliminate temptation and remove them from your wallet.

Some people have gone to extreme measures by freezing their credit cards. Why? This would create an ice block around your card, which would require you to chip away at it slowly. This will give you time to think if it’s the best idea to buy that thing you’re about to buy.

3. Automate Everything

Willpower can be a huge downfall to paying off your debt. By automating your bills each month, you will ensure that willpower isn’t involved.

4. Plan Ahead

Getting out of debt will require some sacrifices, but with enough planning, you can make it work.

For example, if you know that you have a friend’s birthday or family dinner coming up, plan ahead for the costs. Whether you need to cut back on spending the week before, pick up a side job, or meet them after dinner, do what is needed.

5. Live Cheaply

The only way to get out of debt is to make some sacrifices on your spending habits. Find ways to save money each month so you can apply that amount to your outstanding debts. Here are some ways to save money each month:

  • Live with roommates
  • Cook dinners and prepare lunches for work instead of eating out
  • Cut cable and choose Netflix or Amazon Prime
  • Take public transit or bike to work

Finding the Lowest Interest Rates

The higher your interest rates, the harder (and longer) it will take you to pay off any debt.

If possible, you want to find ways to lower your interest rates to help get out of debt quickly. Here’s how you can get started:

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1. Maintain a High Credit Score

Your credit score will have a large impact on your ability to refinance your loans and receive a lower interest rate. If you have a low credit score, it’s unlikely you will be able to refinance your loans. Use these credit tips to increase and maintain an excellent score:

  • Never miss a payment
  • Don’t exceed 30% of your credit limit
  • Don’t sign up for more than one card at once
  • Limit hard inquires, like auto-loans and new credit cards
  • Monitor frequently with free credit-tracking software

2. Find Balance Transfer Offers

Start by opening a free account on credit.com. Credit.com offers you the chance to open a free account and see what type of balance transfer offers you can receive. Some of your existing credit cards might already have 0% or lower APR balance transfer offers available.

Contact each of your credit card providers to ask about lowering your rate for a one-time balance transfer offer[2].

If you do take advantage of this option, make sure that you use a balance transfer and not a cash advance. Cash advances have a ton of high interest fees (15-25%, depending on your credit card) and will only compound your debt problem.

How to Get Rid of Debt Forever

Setting up a plan, removing temptations, and getting the lowest interest rates is the first step to get out of debt.

1. Keep Monitoring and Adjusting

Once you have a plan, don’t get comfortable. Track your debt payoff plan and make the necessary adjustments when needed.

Monitor your credit scores with a free site like CreditKarma. The higher your credit score climbs, the more likely you will be to secure a new, lower-interest loan.

2. Earn More Money

There are only so many ways to save money. Instead of clipping another coupon or making sacrifices for your morning coffee, find ways to earn more money!

Think about it…it is much easier to find ways to earn an extra $1,000 per month than find $1,000 to cut from your budget.

Here are some examples of ways to earn more money:

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Talk to Your Boss

Have a conversation with your boss about current salary and/or commission rates. If you’re not satisfied or want a change, don’t be afraid to look around at other positions. Some of them might even have a student loan debt reimbursement plan!

Start a Side Hustle

This could be coaching students on the weekends, driving for Uber, or taking paid online surveys. There are tons of ways to make money outside your 9-5. Now that you have a clear plan to pay off your debts, you’ll be more motivated than ever to figure out creative new ways to earn money.

Build an Online Business

There are so many websites and blogs that earn money from ads, affiliates, and other online products. Find your niche and get started.

3. Celebrate Your Wins

As you progress in your debt payoff journey, don’t forget to celebrate your wins. You need to always reward yourself for the hard work and discipline that is required to get out of debt.

While you shouldn’t celebrate so big that it increases debt, make sure to factor in little rewards to keep you motivated.

4. Set New Financial Goals

Eventually, with a plan and these steps, you can rid yourself of your debt. Once you do, make sure to celebrate your monumental achievement, but don’t stop there.

Now, you can focus on acquiring wealth and increasing your net worth. Set new financial goals so you have a new target to aim toward. Here’s how to set financial goals and actually meet them.

These could be anything now that you are debt free! Think about where you want to travel, buying your first home, or saving for your future retirement. Just like before, make sure that your goals are specific, measurable, and achievable.

Conclusion

Congrats, you can now set a plan in motion to finally pay off your debt quickly (and hopefully forever)!

Remember, if you want to get out of debt quickly, it’s not always easy. Just like any big goal, there will be sacrifices, challenges, and problems to overcome.

More Tips on Getting out of Debt

Featured photo credit: Pepi Stojanovski via unsplash.com

Reference

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