A personal financial crisis can occur as a result of a great number of reasons. Be it from a job loss, a health emergency, an accident or a pandemic, a major negative event can give you many restless nights. Especially with the pandemic, we can already notice the tell-tale signs of an economic recession and thus, it is natural to feel a little stressful and anxious.
While a recession might be beyond our control, there are some measures we can take that can prepare us for stability during a financial recession or any other crisis for that matter. In fact, the prospect of any type of financial crisis can be less harrowing if we are prepared well.
Time Tested Tips to Create Financial Stability
Read this post to find some solid solutions in the face of financial crises and how to make sure that you not only survive but thrive a personal financial crisis!
The first solution to a financial crisis is to get the full picture of your financial situation. Without mapping all sources of your income and considering all your expenses you cannot begin to set out on the road to financial recovery.
You must have a clear idea of what resources you have and what liabilities you face. Knowing your current standing is essential for developing a realistic plan and pulling through the crisis. Much like a road map to reach a destination, determine your starting point and find answers to the following questions:
- What are your main and secondary sources of income?
- What are your total assets?
- How much debt do you owe to your creditors?
- What is your credit score?
- What is your net income for a month?
- What are your expenses (big and small)?
- Is there any long-term impact of the financial crisis that you should include in your financial planning?
The whole idea of doing this analysis is to take a complete inventory of your current financial situation. Once you have this information in front of you, only then can you put together a sound financial recovery plan.
Set Financial Priorities
When you have put down all the information about your current situation, the next step is to set financial priorities accordingly. Setting these priorities will help you take important financial decisions and create strategies to recover. Whether it is paying off a big debt or saving for an upcoming expense, set financial priorities help you deal with your money problems better.
Here is an excellent article on how to set financial goals.
This solution to financial crisis also includes prioritizing your income sources and looking for new ways to earn some extra cash. It helps you shortlist essential expenses while cutting down on unnecessary ones to leverage financial flexibility.
Set Goals to Grow Your Net Worth
The next problem to tackle during a financial crisis is to keep your net worth from declining. There might be a number of problems that can be a reason for your crisis. Start off by cutting down your expenses and increasing cash inflow. This is also easier said than done. In fact, changing your lifestyle is one of the most difficult tasks. But given the importance of financial stability in life, you cannot do without making the necessary changes.
One great way to grow your net worth gradually is to make small changes to meet your big financial goals. For example, if you are running short of $60 every month, then look for the expenses that you can cut down on or a credit card debt that you can pay off to have some extra cushion for your expenses.
This strategy is referred to as the snowball effect, which means putting all your extra money toward paying off one debt. Once you get that out of the way, move toward the next one to get all of your debts paid off as soon as possible. Hence, improving your credit score and building up your savings can increase your net worth substantially.
Find Ways to Earn Extra Cash
A financial crisis is when you cannot find enough funds to meet all your expenses and obligations. One way to deal with this problem is to find ways to earn extra cash. You can generate extra cash in a number of ways, including selling a possession, starting a side hustle or taking a second job.
The money you earn from these solutions might feel insignificant as compared to your main source of income. But when you are going through a crisis, every dollar can make a big difference. Apart from getting extra cash, such activities often open new doors for you and help you discover a promising venture.
Make Amends and Adjust
Lastly, when you have your recovery strategies in place, it is incredibly important to keep track of your progress. If you notice any discrepancies or problems with your financial planning, make amends and adjust accordingly.
If there is one thing that you can be certain of as you implement your recovery strategies it is that you will learn from your experience and mistakes. Therefore, it is best to get started with a sound financial recovery plan and then make amends moving forward.
The importance of financial stability in life is immense. It gives you the freedom to live life on your own terms without having to worry about how you would pay your bills. But during a financial crisis, it can be pretty challenging and stressful to maintain financial stability and stay afloat.
That said, regardless of your circumstances, a financial crisis can be remedied with self-control and keen financial planning. The key is to stay flexible and make necessary changes as soon as possible.
If you need a smart solution to financial planning, download the Doctor Money app right now. And remember, with the right planning, you can turn a potential financial crisis into a temporary setback.