Guiding to emergency-proofing the finances

The best protection on lousy trouble is accurate planning

If you haven’t planned accurately already, now is an excellent time to emergency-proof your finances. Emergency-proofing can help limit your overall confusion, lower your anxiety, and put you in a better situation in any emergency. That could be a family crisis, a storm, or a global economic crisis.

Boom and Bust Cycles

While it’s difficult to predict when a recession hits, any downturn happens because the economy experiences boom and bust cycles. When the Dow Jones Industrial Average dropped by 777.69 points, equal to 6.99% in September 2008, it was the most significant point drop in history.

But for today, the situation is different. When before, the market used to measure losses in hundreds instead of thousands.

The U.S. first understood the seriousness of the current economic crisis and lockdown in 2020. This recession seemed unavoidable while the markets published tremendous losses that made the 2008 financial crisis look like a minor issue. As it’s now called, the stock market crash of 2020 started at the beginning of March when the Dow dropped by 2,013.77 points, equal to a 7.78% drop.

On March 11, the Dow fell by 1,464.95 points to close 20.4% down from its February high, indicating the end of the 11-year bull market that started in 2009. In the middle of March, the Dow fell another 2,352.7 points, equal to 9.98%. Later in March, the Dow dropped 2,997.11 points, equivalent to 12.94%. During 2020 and the beginning of 2021, the markets recovered with optimism regarding vaccinations, including a global economic recovery. But a situation like the current crisis shows that bear markets can rise again.

Nobody knows when an emergency will hit, whether it’s a storm, earthquake, or changing medical situation. It pays off if you have a plan to help get you through the crisis.

Financial Health

It’s much easier to adapt and respond to an emergency when you prepare yourself. As a starter, you should take a look at your financial situation. Pay closer attention to your savings, net worth, income, investments, and debt. Here are some things to work on:

• Make a budget and stick to it. People normally know how much money they earn, but seeing where your money goes can be challenging. If possible, try to find ways to decrease your costs. Think before buying something: Do I need that? Do I have something else that I could use instead? Do I need this thing more than I need to be financially stable?
• Save and invest a specific portion of your income monthly. Put your salary in your budget to improve making it, and evaluate your progress every year. It’s never too late to begin, but your money has more time to increase if you begin earlier. It would help if you also remembered that economic downturns are not permanent. You should think from a long-term perspective and do not panic. You could also convince yourself that the most suitable times to invest more are these times. If you have spare money, you should invest it instead of selling your investments at these times.
• Organize your necessary documents so you have an idea where to find them in the case of an emergency. Consider putting your most important documents in a safe deposit box, but try not to put such documents that you might need in a rush, like a passport.

Emergency Fund

People who plan finances recommend that you should put aside four to seven months’ worth of living expenses for an emergency. If your finances allow you to set aside more, it’s a good idea to save more. It would help if you also remembered that you should use your emergency fund only in a real emergency.

Fast Cash

If you have already spent all of your funds and savings, you need to put aside some cash. Here are several choices for doing so:

• Check your house and garage and try to find some things you can sell. Advertise your stuff on an online marketplace, such as eBay, Facebook, and other networks, or sell it in the yard.
• You can also borrow some cash from your retirement account. The maximum amount you can borrow is 50% of your static balance.
• You can also borrow from your friends and family members.
• It would help if you also considered earning extra cash. You can work extra hours at your current job, or you can ask for raise. You can also consider working from home with flexible hours. There are websites such as Freelancer and Upwork that have great freelance gigs for various skills.

Debt Management

You can manage an emergency a lot easier if you don’t have enormous debt. Good debt is when you can increase your net worth, like borrowing for a house, a small business, or a college. Bad debt is borrowing for something that can not generate income, such as clothes.