For millions of Americans, the financial impact of COVID-19 is just starting to be felt. Reduced work hours, temporary layoffs and other hardships have caused significant financial stress for people in every state.
What can a family do if they are facing a financial crisis do to stay afloat? Managing a financial setback requires a financial plan. There are several time-tested action steps that can help turn a financial crisis around. Let’s start with the basics, an emergency budget.
Conventional wisdom says that having an emergency fund is important. Anywhere from 3-6 months income tucked away for a financial crisis is the best-case scenario. Even as little as $500 -- $1000 can go a long way to helping you out of a tight spot when a financial emergency hits.
But what do you do with your income and emergency fund when you actually experience a financial emergency? There’s a lot less information available on that subject.
An emergency budget is a specific spending plan you develop and follow when it’s important that you eliminate any unnecessary expenses to stay afloat financially during a crisis.
When evaluating your emergency spending plan, it’s important that you act quickly. While the circumstances that led to this crisis are not your fault, it IS your responsibility to take swift action. A “let’s wait and see what happens” approach will not help you in a crisis. In fact, it may make things worse.
Here are some real-life examples that may make an emergency budget necessary for a period of time:
Hopefully, you already have a regular household budget -- if you don’t, it’s important to get one in place as quickly as possible! We offer some great resources to help you get started building a budget. Once you have your regular budget in place, you can build an emergency spending plan that fits the unique circumstances you are facing.
Some of the things you would normally prioritize in a household budget are going to change when you are implementing an emergency budget. For instance, you may not be able to focus on saving, and you will likely need to scale back your budget allocations for items like entertainment, clothing, subscriptions and personal care.
It’s important to focus on your most important financial needs first. Make sure that these items are covered before anything else:
If there isn’t enough money left over to pay for some of your bills, act quickly and contact your creditors to let them know your financial hardship. There may be temporary hardship programs in place to help you get back on your feet. Be sure to take advantage of any resources available.
Once you’ve evaluated the areas you can cut back in, you can put your new budget totals into whatever budget tool you prefer, and see what you’ve freed up. At the end of the exercise, you should have a lower monthly budget amount that will free up some cash to help you meet your financial needs during this time.
Don’t try to do it all on your own. There are a wide variety of resources that can help you stay afloat. Contact your local 211.org for a list of resources in your state. They cover everything from food assistance, medical needs, unemployment resources, utility resources and more. We’ve developed a list of resources for consumers facing financial difficulty from the COVID-19 pandemic.
Navigating a financial crisis can be frightening, but you don’t have to do it alone. There are professionals available to support you in building a spending plan to navigate a financial crisis. A credit counselor is a helpful resource that will work with you to address your financial concerns. The National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA) can help you find a credit counselor in your area.
If you are experiencing financial difficulty and are looking for a solution, CESI is here to help. Our counselors are available to assist if you are experiencing job loss, temporary loss of income or financial hardship during this time. Contact us today for a free financial assessment with one of our certified credit counselors.
Consumer Education Services, Inc. empowers people to overcome their financial challenges and lead financially-healthy lives.
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