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During times of crisis, whether they’re personal, economic, or from another source, your finances can take a hit. It’s something that many people have experienced recently, as their incomes and their lifestyles have been affected by the coronavirus pandemic. It is hard to protect finances in times of crisis.
However, it’s not only a global crisis that could affect your finances. You can find that many things make it difficult to manage your money, from illness in your family to political turmoil in your country. Many things can cause financial difficulties, but how can you get through tough times without struggling with money too much? Fortunately, there are steps that you can take both during good times and bad times that will help you to protect your finances and survive a crisis.
Work on Reducing Debt
When periods of financial difficulty come along, having to deal with debt can make things a lot harder. If the economy is in trouble, you might even have to worry about rising interest rates, making your debts even more of a burden. During better financial times, focusing on reducing and eliminating your debt can help to set you up for when you might be having more difficulty with your money. Even when times are tough, it’s a good idea to make sure you’re focusing on paying off your debts. If you don’t, you could find that you get into even more financial trouble.
There are various ways to approach tackling your debt to reduce it and eventually eliminate it. There are some debts that take a long time to pay off, such as mortgages, but even these can be managed in a way that helps you save money and pay them off faster. Different strategies can help you to get debts paid off, including focusing on repaying certain debts first. Some people work on paying off their smallest debts first or those with the highest interest rates, for example. Debt consolidation can also be helpful if you have a number of debts. By consolidating them, you can turn them into a single payment and save money too.
Even large debts like your mortgage can benefit from a tactical approach to paying them off. If you can afford to, overpaying your mortgage by however much your lender allows can be a good way to make use of your spare cash. It can get your mortgage paid off faster and could lead to a better mortgage deal if you decide to switch later too.
Start a Side Hustle or Passive Income
The thought of your income dropping or your expenses rising, in times of crisis, can be a frightening one. Most people don’t live far below their means just in case this happens, even if they might have some wiggle-room in their budget. If you’re living paycheck-to-paycheck, the idea of having less money coming in or more going out can be terrifying. One of the precautions that are becoming increasingly popular is to have a side hustle or some sort of passive income stream. This is a great way to top up your spending money or savings when times are good and to have a backup income when your regular income is reduced.
There are plenty of things you can do to start an income on the side. Some people choose to use the existing skills that they already use at work. However, make sure you’re not breaking a competitor or moonlighting clause in your employment contract before doing this. It can be a quick way to start making money because you already have the right skills. However, you’ll still find there are things to learn, like how to operate as a freelancer.
Another option is to do something different, which is a great choice if you want some variety in your life. You might make and sell things, buy and sell things, learn a new skill, or look for a part-time job on the side. Doing something different can help to protect you if the main industry that you work in is affected by a crisis, whereas your side hustle industry isn’t affected as much. For example, during the recent pandemic, someone selling things online might have benefited from the surge in online shopping, which is especially good if you work in a badly affected industry, such as hospitality.
A passive income is one that will keep bringing you money even when you’re not actively working on it. It could include investments that you make, or it might be something like a blog or even an online store (where other people take care of distribution and other things), which allows you to be completely hands-off.
Take Out Robust Insurance
When times are good, you can feel like some types of insurance are a waste of money. You don’t need them very often (maybe never), so you might not feel that you’re getting value from your insurance policies. It’s even worse when you do need to make a claim, and you have to fight your insurance provider to help you. However, insurance is important, and some types of insurance can be vital. Having good coverage from your medical insurance is a must, and it’s even more important in terms of financial uncertainty.
There are many different types of insurance that might benefit you and could help you to protect your finances if anything goes wrong. Affordable medical insurance providers like TrueCoverage are essential not just in times of crisis, but for everyday life too. Medical insurance doesn’t just pay for things when something terrible happens. It’s also there for you through routine health concerns to help you keep you and your family healthy. Other types of insurance are definitely useful too, whether you’re going through a tough time or everything is going well.
When you have the right insurance, whether it’s auto insurance, home insurance, pet insurance, or anything else, it helps to protect your money. You can claim the funds that you need to pay for things that go wrong, from a break-in at home to Fido’s essential surgery. Of course, it’s also useful to have savings to pay for any up-front expenses so that you’re not completely reliant on insurance all the time. Sometimes you might need to pay for something upfront before making a claim, or you will have a copay or excess to pay before your insurance kicks in.
Paying for different types of insurance every month can be a pain, but you’ll be glad that you did it when you really need it. If you need to make a claim, you could benefit from a much larger sum than you have paid in premiums, especially because most policies will kick in pretty quickly.
Ensure You Have an Emergency Fund
Having an emergency fund is essential if you want to protect your finances in times of crisis. When you have an emergency fund, it’s specifically designated to be used when you need it more. It means that you can avoid dipping into the money that you have saved for other purposes or cashing in on investments before you are ready to do so.
When saving up an emergency fund, most people do so in terms of how long the money would last you if you didn’t have any income. If you suddenly had to pay all of your expenses without your regular income, you could have backup savings that are enough to last you for three, six, or even 12 months. That doesn’t mean that you can only use your emergency fund when you have no income. You might dip into it for emergency repairs or other unexpected expenses, then top it up again when you can.
To start building an emergency fund, you should first set a goal. If you have no savings set aside, you could start with one month’s expenses, then once you have done that, expand it to three, six, or more. Another option is to save enough money to cover your mortgage or rent for a certain period. You could put as much as you are able aside each month. One option is to save for each expense at a time. Start by saving enough to cover your mortgage for six months, and then save enough to cover each of your utilities for six months.
Make Diverse Investments
If you’re investing, it’s smart to make your investment portfolio a diverse one. When you have diverse investments, you’re not reliant on one market or industry performing well all the time. When one investment might not be performing well, you will have other investments to back it up. It’s the basic principle of not putting all of your eggs into one basket. There are various ways to diversify your investment, from choosing different types of investment to investing in different industries and markets. It’s a good idea to review your investment portfolio regularly to ensure it’s doing well and that you have a diverse selection of investments that will help you in both good and bad times.
During times of crisis, being prepared will help you to protect your finances. But if something bad happens, it’s not too late to get organized today! Planning ahead is one of the best ways to protect your finances in times of crisis before they even happen.
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