BravoFilipino.com | 4 Tips You Should Know to Help You Survive Any Personal Financial Crisis | A personal financial crisis can happen at any time without warning. The global COVID-19 pandemic is one such example of an unexpected event that has forced many companies to close and many people to suddenly lose their jobs. That’s why it’s important to start preparing for the unexpected as early as possible. And if you don’t know where to begin, read on for four tips to help you create a rock-solid financial plan.
Set Up a Monthly Budget
The first thing you should do is set up a household budget to track your monthly income and spending. Typically, most experts recommend setting aside 50 percent of your paycheck for your needs such as utilities, rent, groceries, and transportation. You can then assign 30 percent of your salary for your wants, which can be spent on leisure activities, hobbies, and other non-essential expenses. Finally, 20 percent of your income should go straight to your savings account.
By keeping a budget, you can better determine if you’re living well below your means or spending more than you can afford. Then, you can make adjustments to ensure you’re setting aside even a little money each month.
To help you better track your funds, you may want to consider using separate bank accounts for storing your needs, wants, and savings. While this may seem like a hassle at first, many financial institutions now allow for online banking, even accommodating account opening processes entirely through the Internet.
Create a Crisis Budget
Once you’ve set up your regular monthly budget, you’ll also want to create a bare-bones version that you can refer to in a crisis. To do so, go through your list of expenses and eliminate any non-essential items. This means that your list of wants is the first to go, but don’t stop there. Take a closer look at your list of needs and see if there’s anything you could either afford to do without or downgrade. For example, you may want to cancel your gym membership and look for ways to exercise at home. Instead of completely doing away with your mobile data plan, perhaps you can downgrade to a cheaper package instead.
Keep going until you’re down to the exact amount you need to survive each month, which should be enough to cover your basic necessities. By doing so, you’ll have a better idea of how long your savings can last.
Build Your Emergency Fund
Now that you know how much money you need to get by during times of crisis, it’s time to start building your emergency fund. While there are no hard and fast rules on the exact amount you should save up, most experts agree that three to six months’ worth of expenses should be the bare minimum. But depending on your personal circumstances, it may be a good idea to save up more than that for added security.
Once you’ve settled on an amount, make sure to store these funds in a liquid financial product such as a savings account. That way, you can easily access it at any time, which is essential during times of crisis. And whatever you do, don’t put these funds into an investment account, as they’re incredibly volatile. The last thing you’d want is to be forced to sell at a loss just to gain access to your emergency fund.
Invest in Insurance Plans
Sometimes, your emergency funds may not be enough to cover the cost of an unexpected life event. That’s why you’ll want to protect your assets by getting adequate insurance. Generally speaking, the main types of insurance are the following:
- Health Insurance: Your health insurance policy should be able to meet your basic personal healthcare needs. Additionally, it should provide disability coverage in case you can’t work for an extended period.
- Home Insurance: In the event of a fire, a flood, or other natural disasters, this type of insurance can help cover the expenses of rebuilding broken structures and replacing damaged household items.
- Car Insurance: Car owners are required by law to get Compulsory Third Party Liability insurance. And while Comprehensive Car Insurance may not be mandatory, we recommend buying one for extra coverage.
- Life Insurance: If you have dependents, life insurance can help provide them with financial security in case you were to unexpectedly pass away.
Whether it’s a home repair, a car accident, or a medical injury, a single emergency could potentially wipe out your entire savings in the blink of an eye. And given the impact of COVID-19, it’s hard to say exactly how the economy will fare in the months to come. But with proper planning and preparation, you can weather any financial storm. Keep all these tips in mind and you’ll have greater peace of mind, knowing that you’re ready to tackle any emergency.