What Happens With Your Personal Finances During a Financial Crisis?Opinions | August 10, 2020, Monday // 11:14| views
Since the globe is split into two considering Covid-19 case, wondering why, who, how put in on table, the fact of its existence impacted tremendously the reality we all were used to live in.
It worth to take a moment and think how to react adequately on the new environment. How to go through this crisis with minimum loses and hopefully high scoring concerning us and our beloved.
In other words, how to set a strategy and follow it in order to overcome the hard times lying ahead.
The main questions:
- What are overhanging risks regarding income, living standard, security perception. And how to manage those.
- What is the reasonable behavior and what to be the specific steps towards the goal.
I am not fond of inflating tension, but it is useful to face the facts and their probable consequences.
The global economy is in crisis.
We or our family members lose our job or income. Dispose with less money to support our needs or desires.
Most of us will face difficulties to pay for their loans, mortgages or any other financial obligations.
The sluggish consumption increases the risk of bankruptcy for many businesses.
Supplies are disrupted all over the world.
The most important economies in the world – those of USA and China – are in the eye of a storm. Covid 19 pandemic; increasing unemployment rate; internal political problems; forthcoming elections; trade wars paint a gloomy picture. Due to the high intensity of international economical linkage if something happenes in one corner of the world it inevitably marks up the entire globe. They say that if one of the giant economies sneezes the globe is getting sick. If we go further on with this metaphor, we would say that currently both giants are coughing on the top of sneezing…
We all hope that it will not go further than a banal cold. But…One cannot tell how long will that take and how complicated can get over the time. No analyzer can make a 100% precise prediction when we will recover and get our normal life back. The crisis is developing. These are the facts. The Covid-19 danger is still hovering over. Scientist still elaborate vaccine. The pandemic may explode again.
How to take control of your money?
In times of uncertainty it is natural to strive for behavior that will provide us with more stability, predictability and sustainability.
Build up your savings
Experience shows that calmness comes with the financial resources we have at our disposal. This is the money we did not spend once. The bigger reserves the longer is the period we can survive if hard times show up.
Adequate money management is a great advantage.
The number of “Personal finance planning and management” approach followers is increasing progressively. This approach is emphatically proper in time of crisis. The main principles of this approach are grounded in practice and guaranteed by success or failure of those who lived before us.
What to do – step by step:
Try to minimize your spendings
Assess soberly the need of all emotional and superfluous expenditures. This is a spending that is not vital. Yes, it is meant to bring us pleasure and to make us feel good but do the best to postpone it. Find some other activities instead of shopping to lift your spirit and well-being.
Look for ways to earn more cash
Screen and explore some different ways to generate cash. Utilize your free time to develop your qualities, knowledge and skills. Be ready for post-crisis time when new opportunities will appear. Get prepared.
Invest continually in your financial literacy. Knowledge acquired in this matter will help you to take right decisions for your money and therefore will make your life easier, diminishing uncertainty and complexity.
How to make sure you will survive this crisis?
Follow four main steps.
Refinance your loans
Focus on timely paying-off. Any delay or postponement make the loan more expensive. It means that you will give more money to your creditor or bank instead of using it for your needs and desires. Time costs money.
If you are facing difficulties due to the crisis it’s possible to renegotiate terms of your loan. The aim is to prolong the duration of your loan contract with the bank, but to achieve more bearable installment. The second option is to search for better conditions and to refinance your loan from another bank. Market competition will play on your side. Refinancing with other bank will provide you with more attractive conditions.
Build your emergency fund
If you didn’t build it so far – start now. Discipline yourself to accommodate your living standard in 80% of your income. The residual 20% are intended for emergency fund and investments.
You spend more than 80% of your income. May be, it means that your income is not sufficient. Read again the paragraph above “Look for ways to earn more cash”.
Revise your budget
Your budget is the frame that limits your spending. Building it you decide on what to spend for, how much and what part of your income to save for ensuring future stability and financial safety – savings and investments. Regularly revise your budget to reflect changes in your life. Thus, you will keep your money under control. Instead of being under its control.
It is better to start this practice willingly and following your plan rather than being pressed by unfortunate circumstances. The feeling is different.
Do not stop working towards your financial goals
Following the four steps above you will start to take proper decisions regarding your money. Those will:
· Protect you from personal financial crisis;
· Help you to avoid the trap of financial indebtedness;
· Give you favorable investment opportunities;
· Lead you to your personal welfare enlargement;
· Support your confidence and well-being with feeling of managing your life independently.
Do not underestimate your role in building, protecting and increasing your personal welfare. Take responsibility on its management. There is no one else who can do it instead of you. “Personal finance planning and management” is one thing that will bring you up to the clarity when, how and what are the goals you are able to achieve.
If lack time or knowledge, meet a financial consultant[AY1] . During your discussion you will get valuable orientation and recommendations on how to improve your personal finance management. Don’t wait for another crisis to start planning your better future.
Author: Plamen Botchev, Certified Financial Consultant, NN Bulgaria
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