Budgeting During Times of Crisis: Part 3
Last time we covered how to track your income and assess your debt to income ratio. Now let's talk about prioritizing your spending and cutting costs when facing a financial crisis.
Step 1: Prioritize your Debt
Although part of cultivating a well-balanced financial lifestyle is meeting ALL of our monthly financial obligations, when facing financial crisis the priority quickly becomes meeting your most critical needs. You can use this Debt Prioritization Sheet to list and track how your debt should be prioritized when facing financial challenges.
Some bills you might list on this tool are things like Child Support, Unsecured Loans, Income Taxes, Automobile Loans, Mortgage/Rent Payments, Delinquent Utility Bills, Medical Bills, Property Taxes, Student Loans, and Family Necessities.
Step 2: Save and Preserve your money
Saving and preserving money are two different things.
Saving is when we are taking a percentage of our income and depositing it into a savings/investment account or some other secure way to store money for emergencies and investments.
Preserving money is when we find ways to cut costs and reduce our spending so we can stretch what we have available for the most important expenses, like paying for essentials.
A common goal for saving and maintaining financial security is to acquire 1 to 3 months of savings as a safety net in case you ever have to stop working for a significant amount of time or face a crisis in your family where income is limited.
You can preserve money by asking for help from a loved one or finding other creative ways to reduce your living expenses. You can also preserve money by reaching out to some of your bill collectors and asking what deals or breaks they can provide to help you save money, make a payment plan, or extend your due date temporarily. If you have a car loan, consider trading down or refinancing your loan.
Lastly, look into government and non-profit financial, medical, food and utility assistance programs to see what you may be eligible for. These resources could help you get through rough times.