If staying focused and thinking positive is hard enough when life is going on normally, how can you get your personal finances under control during a crisis without panicking?
It can be done. You can plan for financial setbacks and stay calm in the midst of a storm. To do this and minimize the impact in the worst of circumstances, you need to focus on taking control of your finances and learning how to survive when your income is reduced.
The theory makes sense, but how can you put it into practice? Where do you start? Here’s a quiz and a list of tips to help you manage your personal finances now and in the future.
Find out if you are financially stable
These questions will help you know if your personal finances are in good shape. Then we’ll offer several tips to help you manage them.
Do you find it very challenging to deal with your personal finances?
Maybe you haven’t had specific financial education or just don’t like numbers, formulas and spreadsheets.
But your financial future depends on how well you know how to keep track of your income and expenses. If dealing with your personal finances seems overwhelming, seek help and resources.
There are several free resources and online courses you can take advantage of in your spare time. Then, apply what you’ve learned – your personal finances will no longer seem so challenging.
Are you aware of your exact income and expenses each month? If you know these figures, you can determine if you spend too much or have too much money. That total will let you know if your spending habits are adequate.
How do you define your relationship to money?
Your mentality about money determines how you spend it. Do you use money to pay expenses in order to plan and save for the future, or is your motto “spend every penny as soon as you earn it”?
Do you have one, five and ten year financial goals? Living paycheck to paycheck is like waiting for a volcano to erupt. When you’re in control of your personal finances, you have a plan B for getting through a financial crisis. You should set long-term financial goals to protect your business and your family when a crisis arises.
Have a goal-setting plan for your personal finances and those of your company.
This plan is not rigid: you can modify it before, during and after a crisis.
Tips to follow before, during and after a financial crisis
We have divided the following tips into stages. If your personal finances are not in optimal condition, the tips to follow before a crisis will help you prepare properly. Then, use the tips during a crisis to mitigate the effects of the crisis.
Finally, follow the tips after a crisis to implement long-term solutions to keep your personal finances healthy.
At a minimum, set aside the equivalent of 3-6 months’ worth of expenses in a savings account that should only be used as an emergency fund. Start saving cash every week or month as soon as possible until you reach your 3-6 month goal.
Creating a personal budget is similar to creating a budget for your business. Its purpose is to help you control your income and expenses. Follow the 50/30/20 rule: spend 50% of your income (after taxes) on your basic needs, 30% on things that are not as necessary, and save the remaining 20%.
Your goal is to always have some money left over to save.
Get business interruption insurance that covers specific types of loss of income to protect your personal finances.
There are many different types of coverage; it is best to consult an insurance agent to recommend the best option for your business.
Determine the amount of cash you have available to cover all your necessary expenses, including any pending debt. If you are short on cash, you may need to get rid of some personal items that are not strictly necessary (jewelry, antiques, electronics, unused vehicles, etc.) to pay for a credit card, for example.
- Cancel your gym or club memberships, and cut back on restaurant dinners or other leisure activities.
- Try not to buy new clothes, go to concerts, etc. These expenses, even if they seem harmless, add up quickly.
- Make your own coffee, buy food in bulk that you can freeze, or even consider moving to a less expensive home. If possible, stop using your credit cards until the crisis is over. It’s best to use cash so you don’t overspend.
Some banks automatically cancel accounts that have a negative or zero balance for more than a certain number of days (if they plan to do so, they must send you a notice). Keep a minimum of $50 (or more) in your checking and savings accounts so this doesn’t happen to you.
Call your creditors and let them know honestly about your financial difficulties. Most creditors will work out a plan so you can make smaller payments for a while. But don’t ever stop paying your bills.