No one ever wants to fall prey to a financial disaster, but life isn’t always sunshine and rainbows, and things just go badly wrong from time to time. Perhaps you’ve ended up in debt with a bad creditor, or maybe you failed to properly budget your income this month and have been taken unawares by various assorted financial hardships that you didn’t properly anticipate.
Serious financial troubles can put serious strain on individuals, on families, and on whole communities. For this reason, being armed with the right knowledge and tools to protect yourself from this kind of crisis before it develops, is an extremely important aspect of living a fruitful and secure life in general.
Whether you find yourself completely taken aback by an unforeseen expense, or whether you’ve just never figured out where all your money goes, to begin with, there are steps that can be taken to help guard yourself from the kind of financial disaster that inevitably rears its ugly head from time to time.
Here are some tips for protecting yourself from financial disaster.
Do your research and consult with professionals before making risky financial decisions
There are many unwise financial decisions that you could make when backed into a corner, ranging from buying into scams which take large bites out of your bank balance and leave you with little, if anything, in return, to falling prey to predatory loans in those moments when you really need to make money appear in a hurry.
Often, you can reduce the odds that you’ll be exploited, or accidentally make a terrible financial decision, by doing your research in advance and consulting with financial experts in advance.
Sites like moneypug are great for comparing payday loans, for example, and if you’re in a deeply unfortunate position where you’re struggling as hard as possible to try and find a way of escaping a major life crisis — such as losing your home — there are various groups which will provide free legal advice, from professional lawyers, so that you can at the very least move ahead as an informed citizen rather than someone dominated by panic and uncertainty.
If you run a small business, hiring an accountant, and legal advisors, can save you from some major mishaps along the way.
Just take a deep breath and do some research before committing to any decision which will have a major impact on your financial well-being.
Use a reactive budgeting tool and budget for the unexpected
There are many different ways to budget, starting with opening a notepad document on your computer, or getting out a pen and paper, and trying to manually record all your income, and all your outgoings, in order to see how much you can spare to dedicate to a particular function, and how much you can afford to stop spending in other areas.
The thing is, budgeting in this manner is very time-consuming and by no means easy or comfortable. It’s likely you’ll get fed up and lose track sooner or later, and when a major unforeseen expense falls into your lap, the odds are good that you’re just going to be completely incapacitated trying to work out how to balance the books.
Luckily, the digital age has granted us all a suite of effective budgeting tools to take advantage of, including those which follow a zero-based, reactive budgeting model, such as YNAB.
Such budgeting software will typically ask you to assign every dollar and penny of your income to a particular budget category (but only once you’ve actually been paid), and will then allow you to quickly and easily move money from one category to another, to cover overspending or compensate for underspending.
While using such a tool can, in and of itself, make all the difference, setting up a budget category for “unforeseen expenses” and adding money to that category on a regular basis, will mean that you’ll always have a financial cushion available.
Cut out financial “bleed” wherever you can
A major contributing factor to overall financial disaster, is the kind of financial “bleed” that comes from having a large number of unchecked expenses going through on a routine basis.
These expenses will typically seem small and insignificant on their own, but when taken together, can be serious enough to throw your entire financial life into chaos.
These areas of financial “bleed” are typically the result of gratuitous or unused subscriptions, to phone apps, web-based services, gyms, and so on.
Wherever possible, try to cut out this financial bleed and reduce wasteful spending — especially the kind which happens automatically.