Nobody likes the thought of being hit by a financial emergency. But that’s the thing – emergencies don’t announce their arrival, and there's no way you can know when one will hit you. So, the only thing you can do is be as prepared as possible. Sure, the thought of preparing for a financial crisis is undoubtedly daunting and overwhelming. Still, it's better to be hit by one when you have some money in the bank account, as compared to having very little or nothing at all. While the Indian economy is gradually making its way towards recovery, the disruptions felt across 2020 still rankle in the minds of many. This is why it’s always good to be prepared, whether you get hit by an emergency or not. Here are four tips on how you can effectively deal with a financial crisis:
1. Build an Emergency Fund
When you’re faced with a personal financial crisis is when your bank account balance will matter the most. When I say bank account balance, I mean actual cash in hand because that's what matters most during a financial emergency. The more you will have saved up, the better it will be for you. But then, like many of us, you’ll have naively thought that a financial emergency just wouldn’t hit you, and you wouldn't have saved any money either. This is a trap almost everyone falls into. An emergency fund is an excellent cushion against any financial crisis, which is why they're called so. Ideally, you should have three months' monthly salary saved up as an emergency fund for any financial crisis such as a job loss, medical emergency, etc.
2. Clear Your Credit Card Debt
A credit card, although expensive, can be beneficial in making essential purchases when you're running short of cash. But you have to pay your credit card bill on the due date, or else you'll get trapped in a vicious cycle of high-interest payments. If you already have credit card debt to clear, ensure that you pay it off entirely at the earliest. Many people have the habit of paying just the minimum amount due every month – this way, you'll be stuck indefinitely. Paying off credit card bills will help you save more money and also take care of more critical and pressing expenses. Why waste money in high-interest payments when you can save it instead?
3. Pay Your Monthly Bills on Time
Whether it’s the EMIs on an easy online loan you availed of last month, life insurance premiums, or electricity bills, make sure you pay them on time. This way, you can avoid losing money due to late fees and penalties. When you're dealing with a personal finance crisis, every rupee counts. Paying your monthly bills on time ensures that you don't have to lose money unnecessarily. Just being alert and organized is enough. For example, even a late credit card payment of only ₹1,000 can set you back by ₹300-500, depending on your bank. It can even get your card suspended if you're not careful. If automating your bills doesn’t work for you, you can set reminders or write them down.
4. Spend Only on Essentials
When you’re going through a personal financial crisis, every rupee saved is a rupee earned. If you’re going through a job loss, you can’t rely on a monthly salary anymore and have to buy only what you need. If you’ve suffered an accident, recovery and paying your medical bills will become your top priority. These are just two examples to emphasize the point that non-essential spending during a financial crisis will only deplete whatever little savings you have.
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Suppose you're able to follow the four points mentioned above diligently. In that case, you will be better prepared for any financial crisis (if one should hit you). Better yet, make these practices a way of life, and you’ll save a lot more money than you think. Even then, if you find yourself stuck and in need of funds, opt for easy online loans from KreditBee. Our entire loan application process is quick and completely online on the KreditBee online loan app, from profile creation to disbursal. You just need to download the app from Google Play, complete your profile, and relax. If you wish to learn more about our online loans, please write to us at [email protected].