Recovering From a Financial Crisis: 5 Tips

recovering from a financial crisis

How bad are things going to get in the next few months and years? No one really knows. It seems certain that there will be a global recession, but it's hard to predict how long this will last and how severe it will be. 

The McKinsey group has recently estimated that up to 53 million jobs in the US are vulnerable as a result of recent events. They include in this number all permanent lay-offs, temporary furloughs, and employees who are likely to have their pay or hours reduced. 

It seems that there are not many people who will come out of this financial crisis unscathed. So how can you best prepare yourself to weather the storm? Read on for five great tips on how to survive whatever the global economy has to throw at you. 

5 Tips to Deal With a Financial Crisis 

Whether you've already lost your job or you're facing an uncertain future, it makes sense to be prepared. Here are some steps you can take to get your finances in order and protect yourself from the worst effects of the financial crisis. 

1. Set a Budget 

Now more than ever, it's important to take control of your finances. Whether your income has taken a hit or as yet is unaffected, it's critical that you understand and have control of your outgoings

To achieve and maintain financial security, you must be spending less than you earn. This prevents you from getting into debt or eating into your savings and should help you to build up some savings in the long term. This will give you more security against uncertainty. 

The simplest way to manage this process is to write down your total income and list all your expenses. Some will be fixed, like rent and some bills, and others will be variable, like groceries and money for entertainment and clothing. You may need to track your spending for a few months to work out a budget for variable expenses. 

Then you need to set targets and keep track of your progress. This is the best way to be in control of your spending. This level of insight into your personal finances is critical in these uncertain times. 

2. Trim Your Budget Where Possible 

If you want to prepare for the worst or are already facing a reduced income, you need to eliminate all unnecessary spending. Do you really need multiple TV packages and streaming subscriptions? How often are you actually going to the gym? You need to be ruthless and analyze every weekly and monthly expense. 

You could get really serious and try to make some extra money by selling unwanted and unused possessions. You can use online selling sites or advertise locally. You never know what people might want to buy, out of the junk piled up in your garage! 

You could also look at your grocery bill and try some strategies to reduce spending on food. This could involve buying staple items in bulk, cooking meals in batches for the freezer, and having a weekly meal plan. This will mean you're less likely to spend on take-out or impulse buys if you have planned ahead. 

3. Get Help Paying Your Bills 

If your income has reduced, it might be a struggle to pay your bills. The stress of hardship can be extreme when you're worried about covering your rent, heating, and energy expenses. 

There are different kinds of help available for individuals whose income has been affected by the coronavirus outbreak. It may be possible to get assistance in paying for your home energy bill. Help is also available for telephone bills for low-income families. 

It's important if you are unable to meet your bills that you seek help as soon as possible. Otherwise, you could end up in further debt and the situation could quickly become much worse. 

4. Consider Debt Consolidation 

If you are struggling to keep up with debt repayments, it might be worth considering debt consolidation. This is a process of combining all your unsecured debts into one loan with one monthly payment. It can make loan repayment much more manageable. 

While debt settlement companies do not reduce the amount of your overall debt, having one single payment rather than multiple accounts can be much easier to manage. It may mean that the overall interest rate on the loan is lower too. 

However, it's important not to be complacent about this. If credit is freed up, it can be tempting to take on further debt. If you are taking on a debt consolidation loan, you should consider cutting up your credit cards to prevent yourself from getting into more debt. 

5. Plan for the Future 

Knowing that you have enough money now and some put away for the future is the true meaning of financial security. If you can, start to put some money aside. 

It can be helpful to have two different savings accounts. You can use one as an emergency fund for any crises at home or daily unexpected expenses. You could earmark the other account for longer-term savings. Also, don't forget to keep an eye on your pension. Long-term investment is important for a secure retirement. 

If your job is vulnerable, you might want to think about retaining. You could undertake a professional skills audit to help you identify possible alternative career paths. While it's hard to predict which jobs will be most recession-proof, it's always helpful to have a Plan B. 

Surviving the Financial Crisis 

Staring poverty in the face can be a terrifying prospect. Being prepared for a financial crisis, both practically and emotionally, is critical. Don't neglect your mental health at this time and make sure you spend plenty of quality time with your friends and family (even if you have to do this virtually). 

By managing your money carefully and making some plans for the future, you may be able to protect yourself from the worst consequences of a global recession. And in the event of a loss or major reduction in income, you now have some strategies to ease the financial burden. 

Being informed and prepared is your key to success in a financial crisis. For more great tips about frugal living and helpful articles on financial matters, be sure to explore the rest of the website.