When faced with financial uncertainty for whatever reason,
either due to job insecurity, loss of income or something that comes close to a recession,
many people take a cautious approach to managing their money and shift their
focus toward playing it safe and keeping their finances afloat until things change.
As good as it is to be cautious during uncertainty, most people respond to it by
putting their financial planning on hold. But pressing pause, on financial planning doesn’t
really put you in a good position to come out of uncertain times stronger, than you were before.
Financial planning can actually help you turn these unforeseen
circumstances into an opportunity to increase your financial security and
allows you to take the necessary steps toward a brighter future.
Therefore in today’s Practical Wisdom video, I’ll be sharing some tips and
steps to take when approaching financial planning during times of uncertainty.
Also, if you would like to get my free savings and budgeting guide,
you can do using the link in the descriptions.
Now let’s get into it.
1. Revisit your budget
If you don’t normally use a budget to manage your spending, it’s about time you created
one. A budget allows you to manage your money, control your spending and also seek out the areas
you could potentially save in. If you already have one, that’s great. Think about reviewing
it to find ways in which you can cut back on spending. But if you don’t, you can download mine.
Having a well-planned budget makes it easier to detect and do away with excessive expenditures.
Managing your money becomes a challenge when you don’t keep track of your expenses,
debt payments and household income. Making a budget and sticking to it
regardless of the method you use, be it the envelope system,
using an excel sheet or using a budgeting tool, will help you identify areas you can work on.
Planning your expenses wisely doesn’t mean cutting your expenses drastically but rather tracking your
spending better so you can plan better. It pays to track your expenses so you know how much and
where your money is going, especially during uncertain times because anything can happen.
2. Track your spending
Now that you have created and reviewed your budget, it’s time to track your
spending which involves identifying your expenditure throughout the month. It may
seem like a lot of work to itemize your expenses when you first begin,
but understanding why it’s important to track your expenses and how to do so with minimal
effort can help you successfully commit to the activity and become more aware of your spending.
Households need to re-evaluate their finances and prioritise expenses. Determine what can be
considered essential and what are wants and find ways to reduce the latter as much as possible.
Unnecessary expenses could include entertainment,
new clothes, and take out, to name a few. All these things are important,
but you’ll need to hold them off until things are back to the way they were.
Take a look at your financial accounts and determine where these unnecessary costs
are. You might want to cut back on them or eliminate them completely. It’s also
time to put an end to the use of monthly subscriptions that you no longer use.
Start by making a list of things you need and record your daily expenses.
Identify which expenses are going to your wants,
needs and savings. If your expenses are leaning heavily towards wants,
it’s recommended that you reduce it so that more will be allocated to your needs and savings.
3. Strengthen your emergency fund
Now would be the best time to build an emergency fund if you don’t have one
already. Emergency funds are designed to offer additional security in case
of a financial emergency that may develop during times of uncertainty.
An emergency fund equivalent to three to six months’ worth of expenses gives funds
for ordinary household bills if your income is abruptly cut off due to illness, job loss or other
causes that are beyond your control. Such funds can serve as a safety net when times get tough.
If you find putting aside money into an emergency fund a challenge, you should
enable automatic monthly transfer of funds into savings accounts to guarantee you’re continually
building your reserve. Consider building up your finances to give yourself an extra
cushion to withstand unforeseen circumstances, even if you have an emergency fund already.
If you guys are getting value from this video, do me a huge favour and give this video a like.
4. Supplement your income with something on the side
Another thing that can help you prepare for future uncertainties
is to increase your income. Having a gig on the side can help supplement your income,
strengthen your emergency fund, and diversify your income streams.
However, saving is just half the battle. As inflation goes higher every year,
you need to find ways to boost your income,
whether it be finding a side job, asking for a promotion, or starting a business.
Having multiple sources of income will become vital in future financial uncertainties because
you’re not depending on one source alone. So even if things go south with your main job,
your side job or business can serve as your backup source of income and vice versa.
5. Invest
Once you’ve already built up your emergency fund
and have insurance cover, it’s time to grow your investments.
You first need to determine what your risk appetite is. If you’re a beginner
or a conservative investor, you may want to keep your money in a low risk investment
vehicle. Explore fixed income securities as these will give you fixed source of income
over time with the face amount invested returned to you upon the end of the term,
regardless of changes in current market performance. You can enjoy
the benefits of having a stable source of passive income with minimal risk.
On the other hand, if you’re an aggressive investor, you may want to invest in stocks
as these potentially offer higher returns than bonds and high-interest savings account. However,
you need to keep in mind that the stock market is a highly volatile market. Thus,
there’s a chance that you’ll lose your money here.
6. Revisit short term and long term goals
Before you can begin planning or adjusting your financial plan,
you’ll need to revisit and potentially re-evaluate your financial goals.
Sit down and write your top ten financial goals, both long-term and short-term goals. Once you have
your list, consider which goals are most important to you, whether it’s saving for retirement, paying
off debt or something else. Prioritise your goals, create a target and keep track of your progress.
Financial planning gives you an opportunity to formally review your goals, update them and
review your progress since the previous year. If you’ve never set goals before, take the
opportunity to formulate them so you can get or stay on firm financial footing, especially during
times of uncertainty. So, prioritise your goals, create a target and keep track of your progress.
7. Insurance cover
Health emergencies and the death of breadwinners are usually the kind
of situations that cause great worry for families. It’s crucial to choose good life
and health insurance plans in preparation for this since they help people deal with
unforeseen emergencies such as the recent pandemic. Not having insurance makes you
and your loved ones vulnerable. That’s why choosing good insurance covers is essential.
If your employment is secure and you have appropriate health insurance for yourself
and your family, you won’t have to drastically change your lifestyle.
As important as insurance is, a lot of people are still hesitant to get
one because of the associated cost of getting one and thinking that it’s still
too early to get one. The first reason is understandable but think of all the
possibilities that can happen to you in the future. What if something happens to you,
you get into an accident, fall sick or even die? You don’t want your dependents
to catch all the burden of paying it, so, therefore, consider getting insurance.
8. Polish your credit score
Taking out credit can be frustrating at times. When your score is great, you probably aren’t as
dependent on credit to finance your purchases. But the moment your financial situation changes and
you need to take out credit, your credit score can drop, making it harder to qualify for it.
You can prevent all this by getting your credit score in great shape even
before you need it. You can have a great score by being on time with your bills,
reducing your credit card balances and checking your credit report for mistakes.
You’ll start from a stronger position if you end up needing credit in the future.
Also, interest rates are on the rise on all kinds of products,
from student and personal loans to credit cards and mortgages. As a result, it’s more expensive
to borrow money than in previous years. The good thing is that you can qualify for a lower
rate when you apply for a new line of credit or refinance an existing loan. A lower score can
also bring down the amount of money you’re on the hook for with your monthly payments,
which frees up cash that can be put into your savings account or used for something else.
9. Focus on repaying debt
During times of uncertainty, looming debt payments may increase stress. Focusing on
your debt payments with the highest interest rates can help you avoid paying too much interest in the
long run. If your debts have similar interest rates, pay off your smallest balance first,
then put that monthly payment amount towards the next smallest balance.
While you may not be able to pay off your debts immediately, you may be able to
reduce the amount of interest you owe and potentially lower your monthly payments.
One of the best ways to do this is through loan refinancing. When you refinance a loan,
you take out a new loan with better terms to repay your original loan. However,
this comes with fees, so you’ll need to consult an expert before
going ahead with this. You can also consolidate your debts, and doing
this allows you to pay one low-interest rate instead of paying multiple rates.
10. Seek help
You don’t have to navigate the whole process of planning for the uncertain, on your own. Financial
planning, especially for uncertain events, can often seem overwhelming at first. Start by finding
an expert who can help you navigate the process from the beginning. This could be an accountant
or somebody in the financial services industry. You could even opt for people outside the industry
like a family member or a friend you trust. Whomever they may be, allow them to work with you
as you plan your finances so that you are always better prepared for whatever life throws at you.
Don’t wait until your finances unravel before you seek out help. Consult with a financial expert
who can review your current financial situation and make recommendations on how to adjust your
financial planning, with the goal being to avoid the financial problems you’re concerned with.
Being concerned about the things you have no control over during
unpredictable times is only natural. It’s important to realise that you
can make better financial decisions now by becoming more conscious of your spending,
decreasing costs and increasing your savings. Take all the necessary steps
to financially secure your family to be in the best possible shape in case anything happens.
Not even the most prudent person can prepare against every crisis,
as the world learned during the pandemic. Thinking ahead gives you a chance to work
through things that could happen and do your best to prepare for them. That being said,
a financial plan keeps you focused on your long-term goals, so every short-term bump doesn’t
distract you from your destination. It’s the only way you can face uncertain times without drowning.
So, thank you guys so much for watching,
make sure you get my savings and budgeting guide if you haven’t, and subscribe if you are new here.
With that being said, have a great day, and see you in the next one.