Money Management in Times of Crisis

Money Management in Times of Crisis

Updated on July 27, 2021

For many people, money management can feel stressful even at the most “normal” of times. So, when facing a crisis, thinking about the best ways to manage money can seem even more overwhelming.

We’ve compiled a few key points that can help you both manage your money and protect your credit and identity during a challenging time.  

Identify Expenses

One of the first steps to take when facing a financial crisis is to reduce expenses. To do this, you’ll need to know exactly what your expenses are. This way, you can be sure that you’re meeting any financial obligations and not getting hit with late or missed payment fees.

To get started, if you already follow a budget, use it as a resource to make a list of your regular spending. If you don’t follow a budget, this exercise can help you create one to use moving forward.

Once you’ve looked at your budget, take the review of your finances one step further by looking at any account statements from the past year, such as those from your credit union or bank and credit cards. This will help give you an accurate picture of where your money has gone.

As you’re reviewing expenses, you’ll want to consider both fixed expenses, such as a cell phone bill or streaming service, that cost the same each month, and variable expenses, such as heat or air conditioning, that vary based on your usage. For variable expenses, you’ll want to consider the average cost over the year (the total annual cost divided by 12 months), as well as what season you’re currently in. Meaning that if you’re facing a financial crisis during the summer, you’ll want to consider that your typical summer cost for air conditioning may be higher than the annual average, and you’ll need to plan accordingly when mapping out your spending.

Reduce Spending

Once you’ve listed your expenses, take a hard look and determine which are true needs and which are just nice to have. For instance, you’ll always need groceries and medicine. However, you may be able to cut out music or TV streaming services, even if it’s just temporarily.

Next, look at the items you’ve identified as needs and consider how you can reduce your spending on these items. This goes beyond the typical belief that you must cut out things you love or clip coupons and includes larger actions, as well, such as negotiating bills.

For instance, you may have Internet service or car insurance that you can save on by contacting your current provider for discounts or a reevaluation of costs. Or you could begin shopping around by looking at other companies that offer the services you need.

If you have debts that you need to pay, such as a credit card balance or a car or home loan, you might be able to cut costs during a crisis by refinancing these debts. Depending on the nature of the crisis you’re experiencing and the current environment, you can determine if refinancing will save you money in the long term by reaching out to current or potential lenders and seeing what offers you may qualify for.

If refinancing won’t work, you might be able to negotiate with lenders to either delay payments or change the terms of the loan.

Utilize Community Resources

Additionally, when looking at your necessary expenses, there may be community resources available to help you. For instance, some Internet providers may offer reduced rates for households struggling to make ends meet during an economic downturn, or you may qualify to receive assistance from a local food pantry to reduce grocery costs.

Keep an open mind when determining what services you may qualify for. There may be new forms of assistance available. And, while you may not have qualified for assistance in the past, a change in financial circumstances or a larger-scale crisis that’s impacting entire communities may lower the thresholds to receive assistance.

What to Do if You Can’t Afford a Necessary Expense

If you’ve explored all your options for reducing expenses and you find that you just can’t afford a necessary expense, the most important thing to remember is that you shouldn’t make a rash decision.

Before you decide how to proceed, you should consider all options. This means that you shouldn’t always jump at the first offer you receive to help make ends meet.

When looking at options, make sure you’re considering not just the short-term advantages, but also any long-term consequences. For example, you may receive an advertisement for a 0% balance transfer offer for a credit card, but the interest rate may skyrocket to 18% or more after the initial offer ends, causing you to spend more in the long term or struggle to afford payments in the future.

Don’t Delay Asking for Help

Once you’ve identified that you can’t afford a necessary expense, don’t delay in asking for help. Asking for help while your account is in good standing may make lenders more willing or able to help you or qualify you for assistance that you may not be eligible to receive once your account is marked late or delinquent.

Reaching out before you miss a payment may also give you more time to consider all options a lender provides to you and allow you to make a more measured decision. For instance, you may be able to go on a payment plan to lower monthly payments or defer payments altogether until a later time. Reaching out for more information about these options can give you more time to determine what’s best for you in the short and long term.

Protect Your Credit

Negative information, such as a missed payment, can stay on your credit report for up to seven years, impacting your credit score for the same length of time. So, if you’re facing a crisis and unable to pay your bills, the effects can far outlast the struggle you’re facing.

This is why it’s so important to reach out for help as soon as you realize that you’re unable to pay a bill. Your lender or utility company may have options that will help you reduce costs in the short term and prevent your account from going delinquent and causing long-term harm.

Additionally, reviewing any offers you receive to make sure that they are the best option for the short and long term can help you protect your credit. Some offers may seem good in the short term, but just delay finding a workable solution for your financial struggles. Things to watch for include a loan that requires no payment now, but is due in one large lump sum in the future, or a special offer for financing that transitions to an unmanageable interest rate down the road. While these offers may provide relief in the present, you’ll eventually have to face the financial realities they bring, which could put you in further financial distress down the road, putting your credit at risk again.

Protect Your Identity

Scammers often prey on the vulnerable. Unfortunately, this is true even (or especially) in times of crisis. When someone is facing a crisis, scammers will try to exploit their feelings of fear or anxiety, offering “too good to be true” deals or mimicking a legitimate form of help or assistance.

To protect your identity and finances, there are red flags you should watch out for. These include:

  • Offers that are too good to be true
  • Offers that require wire payments
  • Phone calls or other requests for your financial account numbers or PINs
  • An unusual sense of urgency
  • Emails or text messages requiring you to click on links to verify or enter personal information

Use Our Free Money Management Resources

We know that managing your money can feel overwhelming. And we’re here to help. To learn more about managing your money in both good times and bad, visit our blog.

The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by PSECU. PSECU does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. PSECU does not warrant any advice provided by third parties. PSECU does not guarantee the accuracy or completeness of the information provided by third parties. PSECU recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.