Life has a tendency not to give you quite what you want, quite when you want it. But while that is not so difficult to live with, it is also life’s tendency to give you exactly what you don’t want, exactly when you don’t want it – and that teds to hurt. A job being lost, a car accident, death of a family member, a messy divorce – all of these can impose more than just an emotional burden.
How does one deal with it?
Here are some steps to follow to try and ease the pain of a financial crisis.
Create a bare-bones budget
It is essentially to know how much you really need to get by on. You should already be preparing a budget of sorts – matching the money that comes in (salary, business income) against money that goes out (expenses).
What we are suggesting is taking this a step further. Strip down the extras from the expense side. Remove the gym membership, the Netflix subscription, the rental for the second television and see what’s left. That’s the bare minimum you need to earn to keep going.
Create alternate sources of Income
Now that you have figured out how much money you need, then think about what you can do to ensure you make that much money a month even if you lose your job, or an earning member of the family. What investments could you make? Is there idle property you can rent? An idle car you can get a commercial operator to use? Is there a part-time job one of you can take up? Do these things now so that you are not helpless when the time comes that you do need to.
Reduce the non-essentials
So much for budgeting and investing Do you eat lunch at a restaurant presently? What if you carried lunch from home? Can car-pooling save you money? If you keep a driver, see if you or your spouse can take up driving duties. Do you have a landline you never use? Can you surrender it? Do you run the air-conditioner during the daytime? Maybe opening the windows will do just as well? See where you are overspending and try to bring it down to the bare minimum.
Maximise your liquid funds
Investing is nice, but investing should happen after you build yourself a sufficient cash cushion. Keep enough money in liquid assets. This does not have to mean only your savings account – though at least two month’s expenses should be available in your savings account at all times. In addition, keep about four month’s expenses in easily-liquidated assets like money market mutual funds, cash managements funds and similar, whose value does not fluctuate significantly, unlike equity funds, and are easily sold. Locking up your money in long-term FD’s, property and equity should be done after you have accumulated a substantial amount of liquid savings. This is necessary to meet sudden expenses, mainly hospitalisation or even day-to-day expenses during a job-loss situation.
Review your insurance
This cannot be emphasised enough. Health insurance will ensure that even if there is a medical issue with you or one of your family members, you will not have to suffer financially for it. The cost of hospitalisation is rising all the time, and a policy of less than 2 lakhs might be quite inadequate. The older you are, the more expensive the city you live in is, the more insurance you need.
Similarly, the death of an earning member of a family results in more than emotional upheaval. Without that earning capacity, the family could be thrown into financial crisis. Ensure that earning family members are insured for enough money that the return from investing this amount matches the income that person was making.
Pay off credit card debt
If you actually end up facing a financial crisis, the last thing you want is to still be paying interest on the money you paid for a washing machine using your credit card six months ago. So as soon as you are able, pay off whatever is outstanding on your credit card. After all, credit card debt costs as much as 24 to 30% per annum. You are actually better off taking a personal loan (13-17%) to pay off your credit card debt than to continue the latter.
Perfect your CV
Too many of us never think about our CV while we are happy in our jobs – and often, long after we are not happy in our job. It’s as negligent as not taking a medical check-up or not servicing your car. Review your CV once a quarter. Not only does this keep your name fresh on job portals, but it ensures you get job offers tailored for your current stage in life.
If the best form of defence is to attack, as George Washington is believed to have said, the best way to avoid losing your job is to get a new one, and a higher-paying one, that will help you in following the points 1 to 6 above.
In conclusion, life will always be uncertain. But the best you can do to hold of disaster is to be prepared, and to be prudent. Follow the guidance above, and no financial issue need ever be more than a temporary setback.
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