There already are several signs that something big will come soon and consumers are waiting for it to happen. According to a survey in the retail sector, sales have dropped drastically during the past months, and nothing good is predicted for the next six months to come. Real estate market is crashing, stock market is crashing, the emergency fund for all businesses is shrinking, credit card debt is getting higher, cash flow of many companies is diminishing, all this due to the coronavirus pandemic.
This uncertain times were never met before and no investment strategy that worked in the past, seem to be a good way in this volatile market. Personal finance of families started to decrease drastically due to the fact that lots of companies have closed their gates and laid off millions of employees, therefore, asset allocation was needed to be re-organized. The only thing we can be sure of, is that something is coming, and we need to be prepared for it no matter what that something means.
Due to the fact that the economy has evolved so much during the past years and it became more connected, individuals are more exposed to risks that before, such as the rise of interest rate, housing price correction, inflation rises fast, quick decline on the global market which lead to taxation and policy changes. Now, most consultants on investment advice are telling us how to protect our cash during the next financial crisis, therefore we will share this with you:
Build your buffer
Any family should have some savings in order to be able to protect their personal finance during a financial crisis and not rely solely on a credit card when an emergency arises. No matter the level of income of a household, anyone should have some cash saved, in order to be able to cover some unexpected expenses. If you don’t have an emergency fund, start building one right now until you have accumulated three to six months of expenses held in cash deposits that you can easily access.
Set a budget
In order to be prepared for a short term or long term financial crash you need to have a clear image on your monthly and even weekly expenses, in order to know how much you cash in and cash out. This way it will be much easier to identify asset allocation and potential cost cuts. Setting a budget will help you not only during a financial downturn, but will help you manage your personal finance better on the long term.
In addition, this will make it easier for you to save money monthly. To make a plan you can you a lot of online financial tools that will help you. There are a lot of free tools that you can access by only using your email address. The covid-19 crisis have made it hard for people to save money, but if you don’t do it now, when the financial hurricane strikes you will fight for survival.
Keep your monthly cash outgoings to a minimum
Unfortunately, when it comes to household bills and utilities we are not focused on finding the best deals and we end up paying much more money than we should every year. Act now and start searching for the best rates to energy, banking, phone, internet and other utilities that can help you decrease your monthly budget.
Even though these small cost cuts won’t seem too much, they do add up and at the end of the month you will fell and ease on your cash flow. So, take some time to search for the best deals for you and your family.
Make sure to have the right current account
When a financial crash knocks on your door, it is quite hard to have the right current account and make is easier to slip into an overdraft on your personal finance. Making sure you have the right current account that don’t overcharge you will make it easier for you to save money, pay lower interest rates and secure your investments.
During a stressful period of time, debt can escalate quickly as people use their credit card too often and they sink into a large amount of money that they need to pay back, becoming way to hard to do so. That is why it would be better to know your budget, save money and focus on low risk investments that will pay off fast.
Put your investments and savings to work
While stock market dropping and inflation increasing can make it hard for you to earn from your investments, it is vital to be proactive about investment, and savings as well, in order to make sure that a financial crash won’t damage your cash on short term and long term.
You need to make sure that your savings are working hard for you on the market, in order to cover your credit card debt and don’t let inflation fluctuations eat from your money when market conditions get bad. Start putting your money to work through one or two small investments when the market is still on it’s feet and don’t put all your eggs in one basket.
If you are not a qualified and experienced investor don’t risk your money on high risk assets on the stock market, just think on a long-term investment, such as real estate (of course, if you have the budget). Owning and renting real estate won’t ever crash, no mater how turbulent the financial market gets, maybe the prices will drop for a while but it’s a safe bet.
Find ways to earn some extra money
When you get tight, you need to find a new way to make money that is available on the market. Maybe a part time job, a side gig, anything that can help you get some more money for you and your family. Such opportunities are always there, as during a financial downturn some companies sink and others thrive, therefore are looking to hire new people. You just have to keep your eyes open and see that one or two opportunities on the market that are a good fit for you.
Sure, investments always sound better, putting your money to work, instead of yourself, but what do you do if you don’t have the necessary amount of money for investments? You find a way to make them. For example, if you have a spare room in your house, you could rent it out.
Plan for rate rises
If your rates will raise you need to have a contingency plan, even though debt is still reasonably cheap. Of course, if possible, avoid debt by all means an think about long-term financial strains. There is only one way for the interest rate to go: up and since it is too late not to commit to large mortgages, how will you prepare for this?
Simple, do not commit to other loans, only if they are small amounts of money that you can pay back fast, in one, two, three months. This way you won’t add weight on your monthly money balance and you can focus on paying back your mortgage.
Protect yourself from high repayment plans
When it comes to real estate mortgages, specialists on investments advice you to be proactive and seriously consider about the affordability of your debt. In one or two years, or even six months, it is expected for rates to sky rocket. Therefore, you need to start thinking about a sharper and more affordable repayment plan as fast as possible, in order to save money and be able to survive in an uncertain financial market, where interest rates go up and cash start to come harder. Find an lock in affordable interest rates, rather than sticking with variable rates that will stress you off.
Pay more than you monthly mortgage rate whenever your cash flow allows you to
I know, it’s not easy, but when you pay more you will have more options when you run out of cash. When stock market starts to collapse and even bear market seems to go down, you would want to protect you family and your investments and by paying your debt faster you will be able to save some money for darker days.
When the real estate market starts to crash, the value of homes goes down, and when this happens, you might end up paying back more money than your house is worth.
In addition, during a crash of the financial market, if you are in negative equity it will be far more difficult for you to remortgage or move your home. You will get in the situation where you can’t switch to a cheaper rate and you will be trapped into your lender’s high-interest standard variable rate, becoming a mortgage prisoner.
By overpaying your mortgage rate when you have money to use for this purpose, you can reduce your debt amount and gain more equity in your home. Just watch out for penalty fees for over-payment, do not exaggerate in order not to pay more money then you need to.
Keep yourself informed about market evolution
Even though you find it boring to read about the financial market, it is very important to stay updated to what is going on in the financial world in order to know what effects you should expect and what impact it will have over your money.
Governments might change policies, large companies might face difficulties, opportunities may arise and many more aspects can have a huge impact over your money and your family, so you need to keep track of these thing.