A sudden event that threatens your financial security will be scary. Whether you’re faced with job loss, medical emergencies, legal issues, or even the pandemic, having to spend large amounts of money can jeopardize your future. Because of how out of control things can get, it may be necessary to downgrade your lifestyle.
Sometimes, this can also be necessitated because of the global economic flux. With the constant worrying about layoffs, and increased cost of living, it’s now important to spend less to remain financially afloat. The severity of the situation determines how much you should cut back. When you’ve lost a source of income, major expenses like rent may need to be reduced or removed where possible.
The lifestyle you have is determined by how much money you’re earning. A cushy job gives you the security to pay for a mortgage or a pricy flat. Salary raises also come with perks like more luxury items or travelling. You may be forced to live hand to mouth when you suffer a setback. Sometimes, this can also force you to dig into your savings to survive. To avoid ending up in a pitfall of debt, toning down expenses can provide a cushion. Finances: How You Deal With Debt Can Make You Or Break You! What Are Your Debt Habits?
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Preparing to downgrade your lifestyle
When downgrading your lifestyle for an emergency, you may need to make cutthroat slashes to your budget. For example, if your spouse got into a car accident and needs medical treatment for an extended time, you will no longer have dual incomes and will be spending more money than you bring in. This may need you to move to a cheaper house or move back in with your parents to reduce rent. Before making any decisions start by considering the following.
1. Track savings and spending
Look at where you spend and save money. Tracking how your money moves is a great way to pinpoint where you need to cut back. You can also know where to streamline your budget. For example, you can look at how much you spend on beauty and change stylists or prefer protective hairstyles. When you also keep an eye on your saving trends, you can pinpoint where you can save more money or what you can spend to cover costs to navigate the rough patch.
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2. Choose your priorities wisely
There will always be essential expenses, especially for your basic needs. You need to prioritise housing, food, or healthcare. You’ll also need to see which entertainment expenses need to be excised. Transport will also have to be cost-saved. If you drive, you may need to switch to public transit to save on fuel. Renters can also move from their current homes and go to a cheaper house closer to their workplace to reduce transport costs. If you need to cycle debts to cover certain non-essential expenses, eliminate them. 7 Budget Cut Ideas For Those Trying To Save More Money
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3. Emergency fund
While you may need to cut back costs, try not to dip into your emergency fund until it is absolutely necessary. You can divert some savings to an emergency fund to help cover any more emergencies that can crop up. When you establish your emergency funds originally, the goal should be to have one to cover essentials for up to six months. For example, you can use the fund to pay rent and bills for three months while your income can’t cover it fully. When you’re relying on your emergency fund to survive, try to find a way to rebuild it as soon as your income recovers. Finances: When You Should Use Your Emergency Fund
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4. Self-investment
If your downgrade is being caused by retrenchments, you may need to find a way to secure better employment in the future. Taking part in courses or training that are a boon for your CV can help you find better job security later. Look up the skills needed for your role and see where you can learn more to make it easier to secure a job. You can also invest in emergency contingencies such as retrenchment insurance to cover you in the event of job loss outside your control.
5. Avoid panic decisions
When facing a lifestyle downgrade, you may want to sell your property in a rush to have extra money. Selling land, cars, electronics or other materials requires meticulous planning. If you sell your property for the extra cash, you may find it difficult to repurchase the property even when your income has recovered. Selling your property may become necessary if you have a long-running emergency like a loved one receiving medical treatment. However, you should consult with experts to help you decide whether selling is a good idea.
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6. Avoid extra responsibilities
With the rates at which items are increasing in price, it may be a good time to avoid adding extra expenses. For example, if you’re in a relationship, you may need to invest in birth control. In addition, you can avoid buying a new car or a home that requires extra furnishings.
Check out:
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