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A life you love on a budget you can afford.

Here on TBM®, I provide you with simple, easy-to-follow solutions to help you budget your money, pay off debt, save more, and crush your financial goals. But more than that, I give you the tools to start doing the things that matter most to you, on a budget that actually works!

How to Prepare for the Next Financial Crisis

July 8, 2020
FINANCE 101

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Learn how to turn a personal financial crisis into a temporary setback that you can overcome. The chances of something happening that is beyond your control is high, and it could be expensive. Learn what you can do now to prepare your finances.

As the coronavirus continues to wreak havoc on people's budgets, income, financial stability, and the economy, many people are forced to look at their finances with new eyes.

The truth is, the odds of another financial crisis in your personal life is inevitable. Negative financial events such as a job loss, an illness, or a car accident can leave us feeling hopeless and stressed.

Learn how to turn a personal financial crisis into a temporary setback that you can overcome. The chances of something happening that is beyond your control is high, and it could be expensive. Learn what you can do now to prepare your finances.

  • Read: The Budget Mom’s 9 Steps to Financial Freedom

Increase your liquid savings.

When you spend less than you make, you need to do something with that money. One of the best things you can do is to create an emergency fund or add to one. Think of it as insurance for life's unexpected events. An emergency fund will protect you against life's uncertainties.

I recommend an emergency fund be part of your short-term goals. The Federal Reserve did a study of the Economic Well-Being of U.S. Households in 2018 and found that 40% of people said they would have difficulty dealing with a $400 unexpected expense (things like new brakes, new tires, or a new water heater). Many in this group said they would put the expense on a credit card or borrow money from family or friends.

When you start to build your emergency fund, your goal should be six months of expenses. You have to start somewhere, so get the emergency fund to $500. Next, work toward $1,000 in this fund. Then, start working toward three months of expenses and, finally, six months of expenses.

Utilizing accounts such as regular savings accounts, money market accounts, online savings accounts, or even saving cash, will help you the most. These resources don't fluctuate with market conditions, which means you can quickly withdraw the money without a financial loss. 

  • Read: Your Emergency Fund: Is $1,000 Really Enough?

Create a realistic budget.

Creating a foundation and road map with the income you do have is critical. You can't change what you don't know, and in a financial crisis, you will have to think and make changes quickly.

Financial awareness is key, and if you aren't utilizing a budget, it will be hard to know if you are currently living below your means. A budget is also the go-to resource for listing out your expenses. This will give you the ability to cut expenses from your life based on importance and priority.

Remember, the foundation of a realistic budget isn't based on what you want to spend, it based on what you are actually spending right now.

It's easy to write down some numbers on a piece of paper. The hard part about budgeting is making those numbers resemble your actual life. The more realistic you are about each of these numbers, the more likely you'll be able to stick to your budget.

If you aren't willing to put in some investigative work, budgeting won't work. It's that simple. You have to be aware of how much money is coming in and how much money is going out. You also need to know where your money is going.

  • Read: How to Make a Realistic Budget That Actually Works

Focus on being prepared, not just paying the bills.

Paying for the necessities to live is extremely important, but making sure we are not putting ourselves further in debt is also critical during a financial crisis. 

Car maintenance, annual property taxes, and home maintenance costs can profoundly impact our finances and budget. Creating sinking funds or a savings goal for these real-life setbacks should be included in your financial plan.

Growing your savings might sound a lot like building an emergency fund, but it is different. With an emergency fund, you are setting money aside for true emergencies and the unknown. You should never touch this money unless it is absolutely necessary. 

Creating a plan and strategy to save a little bit every month to pay for large expenses that are planned, such as back-to-school costs or Christmas, can help relieve stress during a financial crisis. 

Because you had a savings account in place with money, you could adapt to some slight financial challenges in your life without going further in debt.

  • Read: Sinking Funds – How They Help Your Finances

Pay off your debt.

Reducing your monthly financial obligations will give you additional income to focus on other critical expenses.

Start with paying off high-interest debt, such as credit card debt. The last thing you want during a financial crisis is having your money go towards interest payments. You want to create breathing room in your budget.

Prioritize paying off your high-interest credit cards, then turn to other types of debts, such as personal loans and auto loans. Student loans, however, have more favorable payment options, which makes paying them off less of an urgency.

If you haven't already done so, create a plan to pay off your debt. Part of that plan is being aware of who you owe, how much you owe, and the minimum payments you currently need to make.

Debt is a killer during hard times, and if you don't address the issue now, interest charges will keep eating away at the income you desperately need.

  • Read: How to Choose A Debt Payoff Strategy

Look for ways to earn extra cash.

Having a safety net in case of a job loss or reduced hours can give you peace of mind that you'll still have a source of income no matter what happens.

With many people safe at home, now is the time to strategize ways of turning a hobby into a side hustle. Earning extra income can also come from other resources like driving for a ride-share or delivery service like DoorDash, babysitting, selling possessions you no longer need or use, or looking for a part-time gig.

Earning extra income doesn't mean you have to set out and start a new business, but you should have options and a ‘plan B' in place. The money you earn from these activities may seem insignificant when compared to what you are earning from a full-time day job, but the income seems like everything when you have no other income coming in. 

You never know, what you develop to bring in extra income might turn into a lucrative full-time endeavor.

  • Read: 20+ Ways to Make More Money Starting Today

The bottom line.

Life is unpredictable, and financial hardships can never come at a good time.

Taking steps today to prepare for the unknown will put you in a stronger financial position so you can sleep better at night when the time comes. 

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Filed Under: Tagged With: BUDGET TIPS, CORONAVIRUS, EMERGENCY SAVINGS

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Comments

  1. Tara says

    July 18, 2020 at 3:54 pm

    Yes! We reached financial independence, but we are definitely working on our safety margins now more than ever… more specifically our cash cushion (building that up) and side hustles. My husband recently turned his FT job into a side hustle, and I recently started offering City School Art Adventures for one of my side hustles.

    -Tara of http://www.fourtakeflight.com

  2. Srikanth Mahankali says

    July 22, 2020 at 4:00 am

    Well, Thanks a lot for sharing this article. The way you told about the importance of emergency fund is great. Yes, From now onwards I will plan emergency funds for the next six months’ expenses.

Hello, I'm Kumiko, but everyone just calls me Miko. Welcome to my blog, The Budget Mom. I am an Accredited Financial Counselor® , and mom to a rambunctious boy. Come along with me as I strive to live a life I love on a budget that I can afford. Read more about me.

RECENT YOUTUBE VIDEO

The Budget Mom

The Budget Mom
It’s time for another Real Life Budget. I asked my readers to submit their REAL information. Real spending, real debt, and real savings goals.

I am taking those real-life numbers and showing you how I would organize and budget that information using my Budget By Paycheck® Method.

If you would like to submit your budget information to possibly be picked for a Real Life Budget that we will show on YouTube, please reach out to budgets@thebudgetmom.com.

Diane is a single mom who is a Database Administrator for an IT Department at a local college. She lives in Queens, NY, and eventually wants to move to a lower-cost of living area in the future. 

Diane submitted her information because she is struggling to organize and tackle all of her larger short-term goals.

CHAPTERS:
00:00 Introduction
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Kumiko Love is a single mom who empowers women everywhere to regain control of their financial lives. An Accredited Financial Counselor with over nine years of experience in the finance industry, she founded The Budget Mom, a community of millions of women on a path to financial fulfillment.

She's also the creator of the wildly popular Live Rich Planner® and Budget by Paycheck® Workbook. Love has been featured on Good Morning America, the Today show, CNN, CBS, ABC and in USA Today, US News, World Report, Huffington Post, Money Magazine, Parents Magazine, the Washington Post, and Real Simple. She lives in Spokane Valley, Washington.

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