We all want to be prepared for the unexpected. When it comes to potential financial crises, though, it often happens that people aren’t fully aware of what they need to do to survive.
Fortunately, there are distinct steps that you can take to ensure that you make it through difficult financial periods intact. In this article, we will provide descriptions of typical financial problems that people often face and give tips on how to manage them.
Understanding Economic Indicators
To understand how to manage your finances during a crisis, you should first familiarize yourself with the major economic indicators that are used to measure economic progress. These indicators include:
Gross Domestic Product (GDP)
The UK government puts out reports quarterly of how its GDP has grown or contracted. Understanding changes in GDP gives people a better sense of where industries stand and the general direction that the economy is heading in.
Productivity Index
The Productivity Index is a listing of the productivity levels of major industries, including manufacturing, mining, energy, etc. The government provides regular updates to the public on this.
The Inflation Rate
The inflation rate is a measure of the purchasing power of a given currency. Gaining an understanding of how much inflation is affecting the prices of the things you buy will help you better manage your purchases.
Labor Market Trends
Labor market trends include such things as the overall unemployment rate, recent changes in the unemployment rate, average weekly earnings, etc.
Assessing Personal Finances
Once you have a solid understanding of how the economy works overall, the next step will be to conduct an assessment of your financial situation to determine the state of your overall financial health. You can assess your financial situation by considering the following steps:
Map out your monthly expenditures. Create a map of your monthly expenditures according to category, and make it as detailed as possible. Include categories for both fixed and flexible expenses. Take note of whether you are spending within the means of your current income every month, or whether you find yourself falling short. If you are going over budget, try to determine which expenditures are causing you to do so.
Review the amount of debt that you have and how many creditors you owe money to. Determine whether or not you can make the necessary payments on time to each of your creditors. You should also review your credit score and take note of how strong it is.
Review your retirement and insurance plans to ensure that they continue to reflect your current and future needs adequately.
Managing Debt
If you have multiple sources of debt and struggle to make payments, there are active measures that you can take to improve the situation. First, make sure that you can make minimum payments by the required dates. Not being able to make even minimum payments on time will cause your debts to snowball.
Also, try to eliminate particular debts that have especially large interest rates. For instance, tackling a £50 payday loan can be a strategic step in regaining control over your financial situation. By systematically addressing such debts, you pave the way for more effective management of your overall financial obligations.
If you need additional guidance, consider getting a debt management plan with the FCA. Debt management plans provide companies that help you work out your monthly payments alongside your creditors.
Diversifying Income Sources
Even if you have a modestly-paying job, you can find ways to diversify your income sources to gain extra money each month. Ways that you can earn extra income include:
Stock Market Investments
Investing in stocks that will provide you with dividends regularly. While not all stock investments will allow for this, in many cases you can choose whether to reinvest your dividends, or have them sent to you. Mutual funds, ETFs, or bonds can also provide regular payments.
Residential or Commercial Real Estate
Investing in real estate either for rent, or commercial real estate that you will benefit from the growth of. If you invest in a residential property – particularly in a high-rent area – you might be able to make a substantial amount from a renter. If you invest in commercial real estate, particularly in the form of a real estate investment trust (REIT), you could benefit from dividend or interest rate payments.
Side Hustles
Taking on side hustles and benefiting from passive income streams. Creating a work, such as an ebook, will provide you with royalties when copies of it are purchased. Also, several side hustles are becoming increasingly popular, such as affiliate writing, blogging, or starting a practical YouTube channel.
Social Assistance and Government Programs
If you are truly in need, the UK government has numerous social assistance programs to help you out financially. You should familiarize yourself with the different types of programs available and which ones might apply to you. Some of the more popular programs include:
Universal credit, provides people with monthly or twice-monthly payments to help with living costs.
Housing benefits, which are available for unemployed people, have a low income, or are living in supported, sheltered, or temporary housing.
Assistance with heating costs, which is available through the Warm Home Discount Scheme. It will make a direct payment to your heating bill if you qualify.
Local council assistance with energy and water bills, food, and other essential items that are available for low-income people in different regions.
Protecting Assets and Insurance
Protecting your assets is essential to make sure that creditors do not attach or garnish them. Also, you should make sure that you choose the right kind of insurance to cover you in case of potential problems.
To protect your assets, you can establish a family trust. These types of trusts are specifically set up for this purpose and will provide tax benefits to protect your assets from creditors.
Also, make sure that the premium that you are paying on your health insurance plan accurately reflects the degree of risk that you have. British insurance plans are divided into “tiers” depending on risk level and are priced accordingly. Factors such as age and pre-existing conditions determine the tier that you occupy.
If you have a health condition, consider getting a supplementary health insurance policy that will cover your additional needs as wait times for major treatments have risen sharply in recent years. Don’t neglect insurance for natural disasters or other types of circumstances that might not be required, but which might cause you unexpected financial trouble.
Final Thoughts
Being prepared to survive potential financial crises in the UK involves multiple elements, each of which needs to be in place. However, if you manage to cover all of these things, including how to manage your budget, take care of your debts, diversify your income sources, and take advantage of potential assistance by the government, you should be in much better shape to weather potential storms.
