Hard times can quickly test our personal finances. It may be a widespread event, like a market crash or recession, or a more personal crisis such as job loss or a cut in work hours.
Preparation is better than panic, however. And starting now is better than doing nothing.
To get your finances ready for tough times, you should know:
How to find savings in your budget.
How to make some quick cash if your hours are reduced.
How to protect your credit score.
How to prioritize bills if you can’t cover everything.
How to think through your next move if you lose your job.
Take a look at your spending
Creating a budget makes you aware of where money is going so you can adjust when needed.
Online tools can help you track your spending. Using a budget worksheet or app can give you a framework and help you remember expenses that don’t happen every month, such as car maintenance.
About that emergency fund: You don't need a huge amount stockpiled for it to make a difference. Even $250 in savings can help a family avoid pitfalls like missing a utility payment, according to a 2016 study by the Urban Institute, a Washington, D.C.-based think tank. Gradually building to $500 or $1,000 adds more protection against financial setbacks.
Create a Plan B to bring in cash
If the paycheck from your main job is in danger of shrinking, an extra-money side hustle can be your friend. By thinking ahead, you can have your Plan B ready to go.
Things that you may be able to do include: selling gently used clothes, trading in old electronics, taking surveys, tutoring online and selling handcrafted items on Etsy. You may not make big money, but it will be something. If you sell items that you make, now may be a good time to increase inventory.
Guard your credit score
You might find yourself putting more on your credit cards, especially if you don’t have an emergency fund or if most of your money is invested. It’s essential to pay on time if you possibly can — even if it means carrying a balance. Paying on time is the most important factor in your credit score.
Consider contacting your credit card issuer or lender to ask about hardship programs. You may qualify for some leeway.
Also, be aware that how much of your credit limits you actually use has a big effect on your score. If your credit score is good, you could prepare by asking for higher credit limits or applying for a 0% introductory rate credit card. (An exception: Avoid new credit applications if you are about to finance or refinance a large purchase, like a home or car.)
It pays to safeguard your score because having access to credit, at a reasonable interest rate, can help you navigate through rough patches.
Know what to pay first if you can’t cover everything
There are already some assistance programs available that suspend fees or cut what you have to pay. Be strategic about paying bills when you can’t pay them all.
If something has got to give, look at survival first. You need to cover food, utilities, shelter and work-related expenses, such as transportation, cell phone and childcare. Anything else can go unpaid.
Skipping some payments will damage your credit, but you can rebuild later when the crisis is over.
Have a plan for if you lose your job
A lingering downturn can lead to long-term job losses. If your field of employment is vulnerable, it's wise to keep your resume updated and take advantage of networking opportunities.
Losing your job can temporarily put your brain in a fog so deep it’s difficult to think about what to do next. Having a game plan to handle job loss, and a schedule of sorts, can give you a leg up.