During a financial crisis, your gut reaction can be to avoid letting go of any of your cash for fear of needing it in an emergency later on. However, even during a crisis, you still have to pay off your debt and take care of your other financial obligations.
Whether you’ve been furloughed, let go, or are simply stressed about how you’re going to make it through this crisis with more money saved for your future, we’ve got a few tips for you. Here are five things you should and shouldn’t be doing to help you save money during a financial crisis.
How to Save Money in a Financial Crisis
1. DON’T Dip Into Your Savings❌
If you’re able to, resist the urge to dip into your savings during an economic crisis. The goal is to add to your savings, not to deplete it. If you’ve been laid off or have encountered unexpected medical expenses during the crisis, this might be difficult to accomplish; in that case, it’s best to work toward replenishing at least 50% of what you’ve taken out of your savings account each month.
If you haven’t experienced direct economic hardships, however, avoid withdrawing cash from your savings account. As we head into a recession, it’s going to be important to bulk up your emergency fund. This means avoiding large purchases and other big expenses that would require you to use a credit card or money from your savings.
2. DO Focus on Budgeting✅
The easiest way to get a hold of your savings is to first figure out where your money is going in the first place. To do this, you’ll need to learn how to budget effectively. Budgeting tools can help you with this, but you should be sure to find a budgeting method that works for your lifestyle and spending habits.
For those focused on saving, the zero-based budgeting method is a great way to ensure you’re accounting for every dollar you spend. At the beginning of each month, you plan for every single dollar that you earn, whether that means allocating it to your grocery budget, food budget, or even to your savings and investments.
3. DON’T Rack Up More Debt❌
If you have no other option but to take out a personal loan in order to make ends meet during a financial crisis, try to look for loans with low interest rates. Paying with a credit card is another option when you don’t have the funds to pay bills; if that’s the case, look for a credit card with 0% introductory APR and other rewards to help you earn cashback.
However, the goal during a financial crisis is to avoid accruing more debt. If you need more money, consider asking your employer for an advance on your paycheck or check with friends and family first who might be able to loan you money without having to go through a bank.
Check out our guide on 5 Ways to Get Emergency Money where we talk about how to apply for and receive governmental assistance.
4. DO Reduce Your Costs✅
As part of learning how to budget, you’ll also want to focus on reducing your expenses. Start with small changes, such as getting rid of subscription services you no longer need. Then, move on to finding ways to save on clothing, food, and other monthly expenses.
Chances are that, just by sitting down and comparing your income vs. your expenses, you’ll be able to identify areas where you’re overspending just a little bit. Saving just a couple hundred dollars each month in these unnecessary expenses gives you a little breathing room when it comes time to pay the bills.
5. DO Consider Loan Consolidation or Refinancing✅
One positive thing about the current financial crisis is that interest rates are at a historic low. Depending on the type of debt you have, you can consolidate debt by transferring it to a zero or low-interest credit card, you can change your repayment plan to a consolidation plan, or you can take out a debt consolidation loan.
Debt consolidation is a better solution for those with smaller debts, while refinancing is suitable for those with larger loans such as mortgage loans and auto loans. If you refinance a mortgage loan, you can save hundreds of dollars each month in payments and use that money to put towards your savings goals.
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