Six steps to survive a financial crisis

Graphic of woman climbing green stepsBy Todd Mora, program manager, Sanford Center for Financial Planning and Wellness

Step 1: Don’t Panic

It’s the cliché in every movie, television show, and blog post about crises: “Don’t Panic.” I can remember years ago when my twin boys were about four-years-old, and we went to visit their grandparents. We went to a large park to let them play. My wife, parents, daughter and one of my sons were all enjoying themselves when I looked down and suddenly realized that my other son Spenser was not with us. I looked frantically around the play structure for Spenser. My wife started calling out his name. My daughter who was seven became very upset. I realized that we were becoming panicked and weren’t going to find Spenser if we didn’t slow down and think. I looked over to the large group of children and parents at the soccer field and thought someone there might have seen Spenser. Sure enough, I walk over to the field and there was a mom holding Spenser’s hand and walking him around to find his parents. I thanked her profusely and asked Spenser why he left us. His response, “I wanted to play soccer.” 

The ability to suspend fear and anxiety in times of crisis is critical to being able to formulate a strategy. Find the tools that work to alleviate your fear—deep breathing, counting, focusing on an object, meditation, or sharing your feelings with others. It is key you develop financial strategies, not out of fear, but through rational and purposeful thought.

Step 2: Review

Review between one and three months of your prior expenditures. Most Americans don’t keep a written budget or account for their expenses. When in a financial crisis you need to know what your needs are versus wants, or discretionary spending. Reviewing your household monthly transactions will tell you exactly how you spend your money. You can then classify items as needs or wants. Needs are those expenditures that help you meet the basic human requirements of food, shelter, clothing and medical care or supplies. Nearly everything else is a want. Even within the needs there are wants. For example, buying staple items at the grocery store is a need; getting Grubhub to bring you Taco Bell is a want.

In addition to your necessary expenses, you need to review what income and other financial resources you have. Make a list of what you have in your savings account, cash-on-hand, gift cards, etc. In every crisis, making a list of your resources helps you realize that you have tools that can help alleviate challenges. 

Step 3: Plan

The key to planning is understanding that the value is in the process, not necessarily the final result. All plans change or need modification; the process of planning helps you focus on what needs to be done. It’s a lot like training for a marathon. Though training sessions don’t guarantee how you will finish, they help a runner get an idea of what will happen in the race.

I recommend thinking about planning in multiple timeframes: immediate, intermediate and long-term. Your immediate plan is how are you going to make it through the next two weeks to a month. The intermediate plan is how you expect to make it for the next two to six months. The long-term plan is beyond six months.

For your immediate plan, make sure you schedule out your income and expenses by day. Use a calendar or an app on your phone. You need to know exactly what your cash flow is at all times to avoid experiencing a secondary crisis. In addition, monitoring your income and spending will help you feel empowered in a turbulent time.

For your intermediate plan, you can look at weekly income and expenses. Try to forecast out irregular costs (car insurance, license plate renewal fees, etc.) and develop strategies to meet those needs. It is key to include all expenses in your plan.

The long-term plan is an extension of the intermediate plan that allows you to begin to strategize how to move beyond the current crisis and build financial security. You can identify ways of earning additional revenue, gain marketable skills and create savings to be better prepared for future crises.

Step 4: Implement

It doesn’t do any good to develop a plan if you don’t implement it. Implementation is the action phase of dealing with a crisis. If you aren’t acting on your plan, you’ll be reacting to each mini-crisis that comes up. You have the best knowledge and skills to deal with your current situation. Make sure you take the action you need to put your plan in motion.

Step 5: Monitor

The more acute your financial pressures are, the more diligent you need to be in monitoring your income and budget. You cannot afford to have surprises. If you haven’t done so, you need to use your bank or credit union’s app to monitor your daily activity. Make sure every expenditure was in your plan. Make sure your income is coming in as you expected. As your finances improve, you can reduce monitoring to every other day or a couple of times a week.

Step 6: Adapt

Adaptation requires two components: learning and initiative. As things change or if you experience a setback, do not let it paralyze you. Use the change or setback as a learning opportunity. Identify what specifically went wrong and create a strategy to address it in the future. After you have created the strategy, implement it. For example, if you went grocery shopping and spent more than you had budgeted, review what you purchased and decide if you can significantly reduce your costs for the next shopping trip by adding more bean and rice meals to your weekly plan. 

Everyone experiences financial crises uniquely, and for that reason, how individuals cope with a crisis will vary. However, these six steps will set you on a course to tackle your unique financial circumstances and position yourself for success in the future.

Students interested in free financial coaching through the Sanford Center for Financial Planning and Wellness, can contact me via email or at (269) 760-1719.