Rainy days and financial struggles are an inevitable challenge of managing your money. While budgeting and saving are more straightforward when you can count on steady income and set living costs, a wide range of variables can create financial uncertainty and force a different approach.
When you’re placed in challenging financial situations, your money management strategy might need to change in response. Here are six tips to shift your money management priorities.
1. Prioritize your emergency fund.
If you’re facing financial hardships or the threat of an unstable financial future, building up your emergency fund is a great way to insulate yourself against the ramifications of those financial challenges.
Cash reserves give you a greater ability to cover big expenses and/or weather a loss of income. In some cases, you might want to scale back on your investing and prioritize your emergency fund, and/or scale back on spending to improve your available cash.
2. Pay down debt.
When financial challenges surface, existing debt can create even more urgency to find a workable solution to those challenges. One way to be proactive is by working to pay down this debt now before you’re in a position where the hole dug by debt is made even deeper by new expenses and/or losses of income.
At the very least, make regular payments to stay on track with debt repayment. You might even consider debt consolidation, credit card balance transfers, or other financial strategies that reduce your interest charges and give you a manageable timeline for paying off debt.
3. Revisit your monthly budget.
Financial challenges can offer a great opportunity to take a hard look at expenses you might be able to cut. Consider subscriptions you aren’t using, restaurant budgets you can scale back, and other discretionary spending that can be scaled back to lower your monthly living costs and create more space to grow your savings.
While some expenses in your budget may not be negotiable—or at least not easy to adjust in the short term—your discretionary spending can be a great way to provide yourself with short-term financial relief while also reducing your overhead and financial commitments in the near future. This gives you more time to find additional solutions to the financial challenges you’re facing.
4. Consider a side hustle.
Worried about a possible loss of income or facing additional bills that are creating financial strain? A side hustle can offer flexible income that provides much-needed financial relief, and/or provides some insulation against a loss of income.
If you’re not keen on working two separate jobs, you can commit to only working the side hustle until your debt is paid off or until you get a clearer sense of your financial situation.
5. Continue making on-time bill payments.
During periods of financial struggle, you might be tempted to hold off on paying bills out of a desire to keep more money in your bank account. Often, though, this can lead to trouble. You’ll likely get charged late fees and possibly interest, and the late payments could ding your credit score.
Whenever possible, continue making those payments by the due date. If you’re facing serious financial hardships, contact your creditors and service providers to see if they offer any options for financial relief.
6. Diversify your investments.
Is all of your money in one place? If so, you might want to reallocate some of those funds across different types of investments to minimize your exposure to risk.
If all of your money is in real estate investments, for example, you could suffer significant losses if the housing market crashes. Similarly, investments only into major U.S. stocks could lead to larger financial losses than if those investments were split between U.S. and foreign stocks. The more you can diversify, the more stable your finances can be during periods of volatility.
Even with strong money management habits in place, financial disruptions and other unforeseen events can turn a stable financial situation upside down—and fast. When these challenges surface, take action quickly to mitigate the potential fallout you face and to connect yourself more quickly to solutions that get your finances back on the right track.
Start preparing for tomorrow’s financial disruption today. Check out our infographic, "4 Tips for Building an Emergency Fund Savings Account.”