The words ‘financial crisis’ seem everywhere these days, but you don’t need a global credit crunch or a recession to experience a financial crisis. Financial crisis can be something personal caused by job loss, ill-health, accident or natural disaster.
But does this mean that we are powerless victims to external events, or are there things that we can do to protect ourselves or lessen the blow from financial crises?
Surviving a financial crisis is less about what you do when things are bad, and more about how much you prepare for the worst when times are good. But any time is a good time to start putting a buffer between you and possible crisis.
Yes, I know that if you have recently lost your job or house that you will be wanting to kick me in the teeth right at this point for saying this, but falling into a bout of depression is the worst thing that you can do when a crisis hits. You want to take constructive and positive steps towards improving your situation, and this can only be done if you are in a constructive and positive frame of mind.
Planning ahead and maintaining a good liquid ratio by having a low level of debt to a high level of savings provides a buffer against times of financial stress. Easy, right?
The key is to use a budget so that you are in control of your spending. Planning and saving small amounts regularly for upcoming large expenses takes the pressure off when the bill comes.
Reduce the amount of debt that you have, particularly personal debt. The best way to do this is to avoid the impulse buys that seem so ok in the good times. If you are planning debt, run some cash flow scenarios, like “can I still afford this on one income”, and borrow less than you can afford as this provides a buffer if your income is reduced.
At the same time, increase your savings, particularly starting and growing an emergency fund: an amount of money put aside to cover emergencies only. A healthy emergency fund = peace of mind.
When there are all the everyday expenses to take care of, it seems difficult to build savings. But putting aside a small amount every single week is an effective way to use compounding in your favour. If you wait for ‘a good time to start saving’ that time will never come.
Tighten the Belt
Every household can find a hundred little ways to save money. While you may feel that you don’t need to during the good times, it is reassuring to know that you can reduce expenses during the tough times. Going over a budget with a fine tooth comb is a great way to find ways to reduce expenditure, and money can be saved without even feeling like you’re being frugal.
If you’re wondering where you’re going to find the money needed to build an emergency fund, then this is the place to start.
Insurance protects your assets against loss or damage. There are lots of insurance options, and your circumstances will influence what is right for you, so do plenty of research before buying insurance.
Apart from home and contents insurance and car insurance, one option to consider is income protection insurance. This is insurance that covers you when you lose your job. Exactly what is covered and how much depends on the provider, it may or may not cover all circumstances under which you could become unemployed, so again it is necessary to do plenty of research before purchasing.
Get Someone Else to Pay your Mortgage
Can’t afford your mortgage? Can you pay, say half? Living in a caravan or with the in-laws and renting out your home isn’t going to be great, but if it means that you keep you home in the long run while you work through your financial crisis, it could be worth it. This isn’t going to be for everyone, it will depend on your circumstances, but it’s something to keep in mind.
The other plus is that while in Australia mortgage repayments aren’t tax deductible, stick a renter in your property and the interest is. And not only the interest, but depreciation on renovations, maintenance, insurance and the other incidental expenses of being a landlord become tax deductible. Talk to your accountant for info on the tax laws and other financial implications before choosing this option.
Protect your Employability
You want to make it very hard for companies to let you go by making them feel that you are indispensible to the organisation. This seems like a big ask, but there are plenty of things that you can do to help protect your employability.
First, you want to be a positive contribution to the workplace. This involves having a positive attitude (not complaining about stuff), avoiding office politics and being friendly.
Show that you are an asset to the business by aligning what you do to the goals of the business and ensuring that you are consistently working towards those goals. In times of recession the focus is on money, so be a money saver and find ways that can cut costs and increase profits. Go the extra mile and give more than is expected of you and ensure that you get recognition for it. You want the boss to be aware of just how good you are.
In some economies, redundancy can be inevitable, no matter how good a worker you are. To ensure that you are employable in the face of redundancy, continual learning is essential. You will only ever benefit from self improvement. Updating you skills, both personal skills and technical skills will not only help with finding another job, but will also help with promotion. Don’t forget to stay abreast of industry and product knowledge, which is just important as up skilling.
Networking is such an overused buzz word, but the reality of life is ‘it’s often not what you know but who you know.’ Keep your networks open so that you have more chance of hearing of the next vacant position.
Finally, keep your resume up to date and professional. Go over your resume and look for any gaps in your training and experience and work towards filling those gaps. Look at jobs advertised and read the qualities and skills that employers are looking for in prospective employees. Do you have these skills? If not, it might be a good idea to start working on them.
Find New Ways to Make Money
A recession may seem like a bad time to start your own business, but sometimes there is no time like the present. Just because you’re finding it hard to get a job, doesn’t mean that the skills and knowledge you have to offer aren’t valuable and what you have to offer isn’t quality. Businesses still need the skills that you have even in bad times, so maybe consulting or freelancing is the way to go. With the internet, you may not have to be even bound by geography for work.
In spite of unemployment, you will have dozens of skills that could be turned into money making ventures.
When we first moved to the coast, I found it difficult to find a job, partly because unemployment was higher here and partly because I was very fussy as to what job I would take. I decided that I would only work in an accounting firm as an accountant, despite not having qualified yet, and having absolutely no experience.
In the meantime, to support our income, I advertised and ran an ironing service. It was crappy work, I was working for about $3 per hour. But it helped pay the bills and meant that I could keep looking for my dream job (which I eventually got), without having to take second best.
You don’t need to cope alone. There are a lot of services available to assist you in times of crisis. If you are having problems repaying debt, speak to your bank to organise an interim alternate arrangement while you get back on your feet. See your local social security for unemployment benefits and job seeker help. And if needed, speak to your community services provider for emergency accommodation, food or financial advice. In Australia, if you are suffering from financial hardship you can apply to access your superannuation (under very specific and limited circumstances) to help.
See the Silver Lining
It is in times of adversity that we tend to grow and learn the most and become stronger, wiser people. Often good things come out of bad situations, and the bad situations are what we need to nudge us out of our comfort zone and do the things that we have always dreamed but have been too afraid to try.