Since the economic recession, many people have become acquainted with debt. When faced with financial crisis, many people panic and are unsure of what to do. There are several preventative measures to help finances from spiraling out of control. These methods include budgeting, planning, and opening savings accounts. Let us examine how implementing these methods can keep us out of a financial bind.
Engage in Proper Planning
Every person should plan for emergencies. Have an emergency fund available to prevent significant hardship if a loss of income should arise. If there is an emergency fund in place during a crisis, this will provide some time to make decisions before all cash funds disappear. The fund should cover all possible scenarios in a financial crisis.
Cash payments are best to avoid credit problems, which can be an impediment during a crisis. People with credit cards are at a disadvantage during a crisis because all payments must be made in cash. Often, the only resort is a signature loan or high-interest payday loan. Both should be avoided at all costs because these options could significantly affect a credit score if not paid off according to the terms. Credit cards can be life savers in emergency situations if the cards have low interest rates and are paid according to terms.
Devise a Budget
Debt is a leading cause of stress, and is one of the single most attributing factors to tension in a marriage. Cost of living is high for people who are married. Expenses for houses, cars, credit cards, and groceries are the necessities that typically become a source of contention in a household. To counteract this, every couple should devise a budget. A budget for bills, groceries, mortgages, and car payments are all necessary.
When planning your budget, make something reasonable that you can stick to. The best budget only uses 50 percent of a person’s salary or less per month. The rest can be put into a retirement account or savings account. At the very least, only two-thirds should be spent on basic living expenses and the remaining one-third should be put into savings.
Select a Savings Account
Select a savings account for an emergency fund and one for retirement. The savings account for an emergency fund should be accessible at all times by debit card if needed. This account should only be used in a crisis situation and not used as a checking account.
A money-market account should be opened for long-term savings. Certificates of deposit are also recommended to obtain higher interest rates. The best way to save money is to earn interest. This will add additional funds to the account that can be used at a later date. Speak with a financial counseling representative about the options available.
Protect Yourself in a Financial Crisis
Financial ruin could lead to loss of a home, car or other basic necessities. Consider how these basic principles of planning, budgeting and saving can help prevent and protect against a financial crisis.
This article was written on behalf of Kanetix in Montreal, a top provider of car insurance in Montreal.