What you do with your money now will help you be financially prepared for future emergencies.
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The opinions expressed by the entrepreneurs' contributors are their own.
The government has launched a stimulus package to help companies cope with the storm. However, the pandemic has shown how important financial preparation is for households and businesses of all sizes. Consider the following ideas on how to prepare to minimize your financial risk during an emergency or future crisis.
Reduce and eliminate debt
Debts in the form of credit cards, personal and business loans, and medical debt can make up a significant part of your monthly budget. Interest accrues on the debt you bear, which swallows up part of your monthly debt settlement. A percentage of every monthly payment you make goes into interest, which significantly slows down your goal of paying off the debt in full.
Reducing and eliminating debt can free up part of your business or household budget so that funds can be redirected to more important goals like opening a savings account or investing.
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Review your business and personal recurring debt to determine which one will cost you the most. When you identify the highest yielding ones, pay them out first. Some ways that you may be able to pay off the debt faster are:
Consolidate your debts
A debt consolidation loan is designed to summarize your existing debt in one payment. The loan should come on better terms than your existing debt and with a lower interest rate. Consolidating all higher-interest debt into a single loan with lower interest rates simplifies your repayment plan and saves you interest money, so you can chop off most of your debt faster.
Find residual income or start a second job
Increasing your current income to use the money to repay your debts can be one of the quickest ways to pay your responsibility. Consider opening a side business that you can run on weekends or evenings to increase your earnings or to branch out of your existing business. Brainstorm business and side hustle ideas, do your market research to find out what people need, put together a business plan and get started.
Do you have a savings fund
When it comes to financial advice, most people agree that an emergency savings fund that covers unforeseen expenses is a good idea. The pandemic is the perfect example of why the concept works. Individuals and entrepreneurs who have emergency plans for savings are likely to do better in a crisis.
The idea behind the concept is simple. Companies and households that can cover their expenses for at least three to six months can continue to operate and pay their bills at short notice. You are better positioned to manage a downturn or unexpected event and get away with it.
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Others who have not saved up are all too aware of the effects of a sudden change in their finances, such as job loss, illness, or nationwide closure. Your income may have changed or stopped, but the bills are still due. Many turn to loans and credit cards to fill this gap, leaving large debts that can take years to pay off.
All companies and individuals should actively deposit money into their savings or investment accounts. Aim for an amount that provides a cushion of at least six months for operating expenses or for your personal budget. Save aggressively until you reach your goal, then set up an automatic savings plan to get used to consistently keeping money for the future.
Diversify your investments
Holding six months' worth of savings in a money market or high yield savings account is acceptable, but not ideal. Interest earned is minimal, but you have quick access to the money in an emergency. Larger amounts of money should be allocated to an investment portfolio. The whole point: the market can be volatile, especially during a crisis. The uncertainty in the air makes investors nervous.
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To reduce volatility a bit, periodically review your investment portfolio to make sure you have a good ratio of stocks and bonds. Diversification is essential. Consider adding asset allocation funds that make guesswork easier when it comes to diversifying your investments. Depending on your level of risk comfort, you can choose a 70/30 allocation fund that holds 70% of your investment in stocks and 30% in bonds. Also consider adding an index fund to your mutual fund holdings.
Think of the Boy Scout motto: "Be prepared." If the pandemic has taught the world, it is almost impossible to predict how a crisis or emergency will affect you. Entrepreneurs already feel comfortable with a certain risk. You can't completely rule out the risk, but you can be financially prepared to overcome it.