There are many factors that affect your personal finances, and often, many of these things lie beyond your control. You can’t always escape a layoff or hide from a failing economy. Tragedy and sickness are possibilities, and life events are unavoidable. These challenging circumstances are possible but so is the chance of your personal finances surviving any one of them. When you are prepared, your bank account can handle whatever life throws your way. Here are some ways to make it happen.
Step 1: Organize Your Financial Life
The first step of preparing to face an uncertain future is getting your current situation under control. There are a few ways to do this.
- Make a budget. You will have a very difficult time managing your money if you don’t have an exact knowledge of what is coming in and what is going out. You can’t start an emergency fund, pay off debt, or realign payment schedules until you have a strong handle on your monthly expenses and your monthly income. A budget becomes a tool to change your spending and saving behaviors, becoming a foundation for a strong financial future.
- Prepare to make necessary changes. Once the budget has been created, you will get a clear picture of which areas of your financial life need the most attention. If you are living beyond your means, you will need to make some cuts to bring those funds back under control and ready to be used for a safety net. Changes to a lifestyle aren’t always pleasant, but they may be necessary if you want a secure financial future. You can eliminate unused subscription services or you can lower energy costs with more conscious electricity usage. You can shop for a lower insurance rate or for a bank that offers free checking services. Limit the number of times you eat or go on vacation.
- Commit to monthly financial reviews. Your budget should have identified areas of spending that can’t be avoided- things like mortgage, rent, utilities, student loans, or a car loan. These should be priority payments. However, you need to continue monitoring your spending to ensure you are staying within budget. Refinancing your debt may be another way to settle your monthly finances more easily. With a loan from Axo Finans, you may be able to pay off your debts and consolidate the amount into one payment with a low-interest rate.
Step 2: Pay Down Your Debt
Debt can crush your financial health in the best of times and having to deal with it during uncertain times is even more difficult. To protect your cash and safeguard any savings you have, your second priority should be to pay down your debt. The interest charges on your credit accounts may be draining what is left of your monthly income once you pay your priority expenses. By reducing these obligations, you are in a better financial position each month. Paying your payments on time each month can also keep you from spending more on late fees.
If your credit is good, you may be able to find a balance transfer promotion that will give you a lower rate. Lower interest charges can decrease the amount you actually owe to bring the account to a zero balance. You may also try negotiating with your credit card company to lower the rate. If they know you are going to transfer the balance, they may offer a new rate in order to keep you as a customer.
Student loans can be another debt concern, but there are options for these accounts as well. In times of financial stress, many loan servicers offer a deferment plan. Payments can be postponed for a specified amount of time, though interest still accrues during these times. If you need a deferment in order to meet your other financial obligations, at least try to make the interest payment in order to keep the interest from compounding over the life of the loan. Always communicate with your loan holder to see what options they may be able to extend.
Step 3: Develop a Cash Reserves
The recommended amount of cash savings used to be two months’ worth of living expenses, but as time and situations have shown how inadequate this can be, it is now suggested that individuals have at least six months worth of living expenses saved in an emergency fund. Total up the amount of money needed to function for an entire month, including groceries, gas, and extra expenses that may come up because of family situations. Save six times this amount to be safe, though some financial experts recommend saving an extra three months of income per child.
Saving may be the hard part, particularly if you are living beyond your means and have significant debt obligations. You may want to consider getting a second job, downsizing, or sacrificing your second car or other assets in order to have a solid savings fund. Managing your funds is one thing but having enough reserves to get you through emergencies in another.
With a proactive strategy, it is possible to shore up your personal finances to where you can withstand a medical emergency, a stalled economy, or a temporary layoff. Paying off debt and living within or below your means are just the start of healthy personal finances. Investing in savings, no matter how much you can spare, is the way to build a bank account that survives an uncertain future.