Let’s face the harsh reality. We all have faced or will face some sort of financial crisis in our lifetime and it is our responsibility to be ready for it.
However, we cannot be ready for it if we don’t optimise our finances and prepare for that situation. At any given moment, we must be prepared for a financial emergency.
While personal loans through a bank and personal loans for bad credit are useful financial instruments for helping a person get out of a money jam, the ideal situation is to be prepared to handle such a situation on your own.
Save a £1,000 emergency fund
Your first goal is to put one thousand pounds away into a sacred account for emergency purposes only. This emergency fund could go to a medical bill, a car breakdown, a housing problem, etc.
Whether you need a new roof or a tree falls on your car, this emergency fund can help with this. Store this fund somewhere that is not easily accessible.
It could be in a sacred account in your bank or it could be in a jar in the very back of your closet. In the end, make sure you use it for only emergency purposes.
Save 3-6 months of expenses
Once you have that £1,000 emergency fund put in place, the next step is to save up three to six months of expenses. The quickest and easiest way to do this is by putting this into your budget.
Every month, make sure you set aside a fixed amount of income that is going to go into this fund. Being a bit bigger than your simple £1,000 fund, this fund may take a bit longer to save up so it is important to maintain financial discipline and look at the big picture.
When you meet this goal, you have essentially created a safety net for you and your family. This ultimately protects your family when an emergency does arise.
Use credit wisely
In the face of an emergency, using credit responsibly is very important. In my personal opinion, I would definitely not use credit if I have any sort of cash on hand.
Debt is the last resort especially if you are dealing with a financial crisis such as job loss or you cannot work for some reason. Not only will this cause you to take out debt that is earning interest but you won’t be able to pay that debt back because you are not working.
If you are going to use credit, make sure that you know for a fact that you will be able to pay it off in the future. If not, the interest will compound and you will be in an even bigger financial mess.
This is why I tell many people to store a bunch of cash away in times of economic growth like we have seen recently. By doing this, you can hedge against these crises because of the large cash nest egg you have built yourself.
In the end, everyone is going to face some sort of financial crisis in their life. Taking action before something bad happens so that you are prepared when it does. Like they say, a crisis becomes an inconvenience when you have enough money.