Given the economic downturn, it’s no surprise that people are facing cutbacks in hours, pay, and jobs, not to mention the higher prices for goods and services. It’s enough to make anyone anxious about their ability to maintain their lifestyle or save for the future.
That’s why it’s more important than ever to take a proactive approach to managing your finances. By following some simple steps, you can protect yourself from financial hardship and ensure you’re in an excellent position to weather any economic storms that come your way.
Assess Your Budget
If you don’t have a budget, now is the perfect time to create one. A budget can help you track your income and expenses to see where your money is going. And if you have a budget, review it to determine if your weekly and monthly payments have changed. Also, look for non-essential areas you can reduce or eliminate to free more funds, such as any subscriptions you still pay for but no longer need.
If you find your expenses are more than your income, don’t panic. There are several ways to cut back on your spending to live within your means. Start by updating your budget with your current expenses to gain a broader picture of your finances. Then, create an emergency savings account to serve as a financial buffer.
Create an Emergency Savings
An emergency savings account is a crucial part of weathering any economic downturn. It gives you a financial cushion to fall back on if you experience job loss, an unexpected medical expense, or another unplanned event.
Ideally, it would help if you had three to six months’ worth of living expenses saved in an easily accessible account. If you are concerned about a potential job loss or significant medical fees soon, aim for six months of expenses. Additionally, if you perform freelance or gig work for much of your income, consider expanding your emergency savings to equal nine to 12 months of living expenses.
Regardless of how much you choose to save, remember that you must start somewhere. Don’t stress over how you’ll fully fund an emergency account. Anything you can set aside will help. Create a few step goals and start there. Consider automating your savings efforts if you receive paychecks or make regular deposits. Designate an amount or percentage of each deposit to your emergency savings account to boost your efforts and make it easier to reach your goals.
Pay Down High-Interest Debt
Once you’ve got a good start on your emergency fund, it’s time to take a hard look at your high-interest debt. The average American household has $5,700 in credit card debt. When you’re struggling to make ends meet, the last thing you want is to watch your hard-earned money go toward interest payments.
Credit card interest rates average 18.01%, which is higher than the Federal Reserve average. For many credit card holders, this rate climbs even higher. So, you’re also paying much more for credit card privileges than before. If you’re only making minimum payments on your credit card debt, you’re likely not making much of a dent. You may be barely keeping up with interest, especially if you have multiple high-interest debts like personal or vehicle loans and high-interest mortgages.
To give yourself some reprieve, pay down high-interest debts. If you plan to keep a balance, use only 30% of your available credit line to keep debt manageable. Also, consider switching to lower interest alternatives. Always shop around for the best interest rates. Then switch to a lower interest credit card or refinance your loans.
Refinance Your Mortgage
Refinancing a mortgage does more than offer you potentially better terms and interest rates; it can also give you access to equity in your home without selling your property. If you have a lot of debt or must make necessary home repairs or improvements, consider a cash-out refinance as a solution without taking out an additional home loan.
The Final Word
The current economic situation is uncertain, but you can take steps to protect your finances. Following the tips above, you can create an emergency savings account, pay down high-interest debt, and access more funds via a cash out refinance when needed. These measures will help you weather any economic downturn and keep your finances healthy.
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