8 Things You Can Do Now to Prepare for a Possible Future Financial Crisis

The last five years have been challenging financially for everybody, but there is light at the end of the tunnel. In spite of these signs of recovery many people have had to overhaul their budgets, focus more on saving and reevaluate their need for loans.

That doesn’t mean we can’t use the experience to prepare for the next time something similar happens. After all, no one else is going to plan our future for us. If you want to weather the next storm, there are a few key steps to better prepare for an unexpected crisis.

1. Maximize liquid savings. In a crisis, turn to your cash savings first. Checking, savings, money markets and certificate accounts—this is your first line of defense because the value doesn’t fluctuate with market conditions, unlike some other investments. You can take your money out without incurring fees or penalties.*

    

   Take the opportunity now to beef up these accounts until you have at least two- or three-months’ worth of expenses. If you have larger financial obligations—like a mortgage or tuition—you may want to bump that up to six months.
    

Make a budget. Many people who haven’t successfully navigated a budget view it as a ball and chain, dragging them down from enjoying life. While a budget doesn’t guarantee you’ll spend less, it does provide useful information that can help you prioritize how to spend your money.

 

View your budget as a money manager. Set limits and track your spending so you have a plan for where every dollar is going. Then make adjustments that make sense. Maybe you find that following a budget leaves you with a surplus each month—that can be an indication that you can comfortably contribute more to your savings each month.
 

Don't know where to start? Let our smart spending and budgeting worksheet help you make a financial action plan that works.

2. Cut back on unneeded expenses. Review your budget, recurring bills and spending habits to identify where you could reduce your costs or cut something out completely. Start with your financial institution—are you paying for something you could be getting for free, like your checking account? Maybe you could use a free option or find a simple way to waive the fee. Ask about lowering the interest rate on your credit cards or refinance your mortgage, auto or personal loan.

    

   Next, look at things like memberships, subscriptions, streaming and cable, auto insurance and your cell phone plan. Get rid of what you don’t use (like memberships to three different gyms). Contact the providers to make sure you are on the lowest priced plan for what you need, and price shop with other providers.

    

   Lastly, cut down on what you’re spending on food and entertainment. Make your coffee at home, meal plan your lunches, start a garden and choose more movie or game nights in.

    

   There are a lot of little changes you can make to save money. They may seem insignificant on their own, but together they can add up to a substantial reduction in your total monthly expenses.
    

3. Commit to closely managing your bills. If you’re having a hard time making ends meet, you may think that one or two late fees or finance charges isn’t a big deal. However, these things can snowball and end up putting you further behind than you thought possible.

    

   A better strategy is to be extra cautious and create good habits to pay your bills on time and avoid fees. Review all your accounts twice per month so you don’t miss any due dates. Set up electronic transfers or mail payments far enough in advance that if a delay occurs, your payment will still arrive on time.
    

4. Take inventory of your non-cash assets. We’re talking about frequent flyer miles, rewards points, gift cards, grocery items already stocked in your household and unwanted items you could sell for cash. It’s easy to forget about these assets when things are financially on track. Now’s the time to take stock in what you have and make sure you know where they are, so you have them when you need them.
    

5. Pay down your credit card debt. Obviously, if you pay down your debt, you’ll owe less money if and when the next financial crisis hits. But this tip goes beyond that—less debt means lower interest charges which, in turn, reduces your monthly financial obligations and increases your potential saving contributions. Ultimately, the best money-saving strategy would be to pay off credit card bills in full each month. That way, you won’t be charged any interest and you’ll be maximizing the benefits of your credit cards.
    

6. Get a better interest rate on your credit card. If you’re currently carrying a balance and haven’t been able to reduce your interest rate, try looking for a balance transfer offer from your financial institution or a different one. A balance transfer works by moving your balance from your current, high-interest credit card to another card with a lower interest rate, immediately saving you money. These offers differ from provider to provider—they may include a 0% interest rate or waived balance transfer fee. Just be sure to consider all the fees to make sure it’s worth moving.
    

7. Keep up with routine maintenance. The last thing you need when trying to live on a reduced (or non-existent) income is to have necessities go on the fritz. Make sure your car, home and health are in good condition.

    

   Try to catch problems when they are small, when they are typically easier and less costly to fix. You may think you don’t have the time or money to deal with some of these things on a regular basis, but it’s much better than a surprise emergency when you are short on cash.
    

If there’s anything we can say for sure, it’s that life is unpredictable. Just when you think you have it figured out, along comes a curve ball. Being prepared will transform a potential financial tragedy into a momentary hiccup.

 

Mountain America is here to help! We have financial guides and wealth advisors available for you to plan out your next money move and achieve your financial goals. Contact us for more information.

     

*Cashing out a certificate account prior to its maturity date may result in a penalty.