Avoid Financial Crisis with Good Planning
A lot of people are focusing all their mind on being prepared to fight the Coronavirus outbreak. It is also important to consider your financial preparedness in this plan. A little planning now can help you handle the financial crisis of the effect of the Coronavirus lock-down.
From keeping an evacuation box with important documents, to setting up an account with emergency funds, preparing now can be the difference between financial security and financial crisis.
- Keep an Emergency Savings Account: This account should be separate from any other account and contain enough money to cover at least three to six months of living expenses. It has been said that “financial preparedness is not always top of our minds,” so follow these guidelines to ensure you and your family are well protected from the inevitable outcome facing us in 2020.
- Keep Cash Accessible: Keep at least $300 in cash at home in a place where you can get to it quickly in case of a sudden needs. The money should be in available for emergency use.
- Know Your Insurance Policies: Understand what types of losses your rental or homeowner’s insurance covers. Ask your insurance agent or financial planner about additional coverage for working from home, home offices and big-ticket items. Keep copies of your policies in a safe place along with your other important papers.
- Conduct a Household Inventory: Create a household inventory for items of significant value and locate originals of important financial and family documents. Store original documents in waterproof bags in a safe deposit box or durable “evacuation box” and photocopies in a safe place. Back-up your key documents on your computer. If practical, store copies in the cloud.
- Create and Maintain a List of Emergency Contacts: Keep a list of important emergency contacts, including direct family members, doctors, medical facilities, numbers for your bank, insurance agent and company, lawyer and financial planner/adviser to help you quickly retrieve important information if you become sick and must self-isolate.
You never know when financial disaster – job loss, illness or natural catastrophe – will happen. But you can take a few simple steps to be prepared, just in case. Coronavirus is real and it’s disrupting the world’s economies. It could hit you and your family anytime, are you prepared for the financial crisis when it happens?
Video by: Jack Chapple
It’s tough to be financially shrewd in today’s fast-paced world. With mortgages, car loans and massive amounts of credit card debt, most people struggle to get by from month to month. With most people doing what they can do just to pay their bills, few people are prepared for the unlikely event of a financial disaster.
With the onset of Coronavirus, anyone who’s is not prepared for an unexpected interruption in their financial life will suffer. It’s important to be prepared to help yourself in times of a money crisis. All it takes is a bit of planning ahead of time. Businesses will inevitably fold in the crisis and workers will be laid off. So, it will pay to be prepared.
Here are a few things that will help you be prepared for the unexpected:
- Get an ATM/Debit card: If you are self-isolating, you may not regularly use cash or need a debit card, but there are some circumstances where it may be necessary, especially if you have to do online shopping for your weekly groceries. If you don’t use one regularly, get one anyway and keep it in a safe place.
- Sign up for direct deposit: With direct deposit, you will know that your paycheck will be in your bank account even if you cannot, for whatever reason and you cannot physically get to your bank.
- Sign up for online bill paying: You can pay bills even if you aren’t at home via the Internet. You don’t have to use the service, but it may come in handy at a time when you least expect it.
- Save some emergency cash: Financial planners recommend that you save at least three months to 6 months’ worth of financial expenses. That’s difficult, but every little bit can help. Try to cut back on a few unnecessary items. It adds up, and you never know when you may need to access that emergency cash.
- Set up a home equity line of credit: If you have a mortgage you can set up a home equity loan, which provides you with a lump sum of cash right away. Also, a home equity line of credit provides you with cash that you can use a little at a time, and only when you need it. If you don’t take any money out, you don’t have monthly payments.
But if an emergency strikes, you’ll have cash available, it can be particularly helpful if you find yourself out of work for a period. Your bank won’t lend you money when you are out of work, so plan beforehand and the money will be ready when you are.
Get Your Credit Card Debt in Control
Few people would deny that using credit cards can make day to day life simpler, reducing the need to carry cash and making it easy to shop online.
However, expenditure with credit cards is very easy and it does not always feel as if you are parting with physical cash. This then leads to the temptation to spend more without a second thought. It only becomes a reality when you hear the worrying clunk of a large credit card bill hitting your doormat.
If you’ve experience this, the size of your card debt may seem overwhelming, but fear not – there are a few simple steps you can take to get your debt back under control.
Try and make a little more than the minimum payments:
The minimum payments required by credit card companies have steadily fallen over the years. The minimum payment once upon a time used to be 5% of your balance every month. It is now common to only pay 1.5% or 3%.
With these types of repayments, this small in repayments of your debt will not help your debt decrease any faster. A large chunk of each payment gets swallowed up in interest charges so, depending on the APR rate of your credit card, up to 75% of each small payment that you make could be ‘lost’ in this way. This means that it takes a long time for your balance of your debt to be cleared.
By re-repaying more than the minimum required, you can speed up the process, reduce the term of repayment and end up paying much less in interest charges in the long run.
Prioritize your card debts:
If you have more than one card with different rates of interest, it makes sense to concentrate on the one with the highest interest charges. This means not just the one with the highest interest rate, but the one which charges you most each month, which could have a lower rate but a higher balance.
Check your statements to see which card is costing you most in interest each month and try to focus on repaying this card first by putting any spare cash you have into extra payments while keeping to the minimums on your other cards.
Change your card:
Look at ways to lower your rate and transfer your account balance on to a card provider that may be offering better rates. It could save you a lot in interest charges, helping you to bring you debt down much faster.
If you can get a 12 months interest free introductory rate on balance transfers, this can help you drive down your balance as 100% of each repayment will help you clear your debt much faster. Speak to your Financial Adviser or Bank Manager for help.
Watch your spending:
All the above strategies for getting your debt under control will only work if you stop getting deeper into debt – and this means stopping spending on your cards. Ideally, you’d cut them up so that you can’t use them again, but this might not be realistic as you may need to keep them as a credit option in an emergency.
Also, if you can only do online shopping because of self-isolation, you will need your card. In any case, cutting your spending to an absolute minimum and keeping your repayments as high as possible is the only sure strategy to clearing your debt in the long term.
Making a major purchase:
If you are considering a major purchase such as a car or a home, checking your credit report gives you the chance to see what a potential lender sees and uses to judge your creditworthiness. It will also be a good idea to hold back for 6 to 9 months to see how the economy fare in the war against Corvid-19, this might not be the right time for a major purchase on credit.
A little bit of planning can go a long way when a financial emergency strike. If you plan for it now, you will have fewer worries later. If in doubt, speak to your financial planner or adviser for help. Most importantly act and make it happen.