Personal financial crises come in many colors, from pink slips at work to the green gills of illness to red balances on ballooning debts.
But they all have something in common: They can be solved, or at least better managed, with more money.
Consider these strategies to tap your savings or increase your income to stay afloat as you navigate the stormy waters of a personal financial crisis.
How to Overcome a Personal Financial Crisis
As awful as financial challenges feel in the moment, you can often recover from them quickly. Try these tactics to climb out of your current crisis and get back to sleeping easier at night
1. Draw From Your Emergency Fund
The name says it all: An emergency fund exists specifically for financial crises. Don’t hesitate to tap into your emergency fund now, when you need it most.
Your emergency fund can help you pay unforeseen bills, keep food on the table during a period of unemployment, and otherwise help you make ends meet until you get back on your feet.
I keep some cash in a high-yield savings account. But I also keep some money in other relatively safe, short-term investments that function as additional layers in my emergency fund. For example, I have some money invested in Concreit, a real estate investment platform that pays a steady 5.5% dividend and allows me to withdraw funds at any time. I also have some money in an ETF that owns Treasury Inflation-Protected Securities.
But while you shouldn’t hesitate to pull money out in a financial emergency, you can’t stop there. You must also cut your spending to the bone.
2. Slash Your Expenses
It sounds obvious, yet most people keep spending at the same levels even when a financial emergency hits. It turns out that bad financial habits are hard to break, which is precisely why it’s so important to work on positive money behaviors before you really need them.
When a financial crisis strikes, freeze all spending immediately. That includes clothes, accessories, pricey personal products, entertainment, travel, and all meals not prepared at home. No more work lunches out, take out meals, or delivery.
Not even groceries are sacred. You don’t need steaks, you only need nutritious calories. Read up on ways to save money on groceries before your next shopping trip.
Most important of all, can you reduce your housing or transportation expenses? These are your two largest structural expenses, which typically account for around half of household spending.
Could you find a way to house hack, such as bringing in housemates or renting out storage space? When she was a struggling single mom, my business partner rented out the master bedroom in her rowhouse, and she moved her bed into a storage closet.
Transportation is the second largest expense for most households. Think every adult in your household needs a car? Neither my wife nor I own a car anymore. We first experimented with sharing one car, then eventually moved to a home where we could get around on public transportation. Given that the average American spends $9,282 per year on each car, removing one can transform your budget.
Your old life is out the window, until you find your footing financially. No expenditures are off-limits. You need to redesign your monthly budget from scratch.
3. Create a Budget
Whether or not you had a budget before the crisis, you should create a fresh one now. Reconsider every single expense, starting with housing, transportation, and food as your largest monthly expenses.
But don’t stop there. Are you overspending on insurance? Travel? Entertainment? How important are all those subscriptions to you, from video streaming to music streaming to subscription mobile apps? Put every single one of them under the microscope, and ax most of them.
And so it goes for every single budget category. Review each, and trim every one you can.
You can make a simple budget template in Google Sheets and retake control of your finances when you absolutely need to.
4. Find Ways to Make Extra Cash
Slashing your spending is one way to improve your finances, and a critical one at that. But it’s not the only way to boost your balance at the end of each month.
You can attack the problem from the other side by earning extra money.
That could include side gigs, such as freelance work or starting a side business. It could mean negotiating a higher salary in your current job, pursuing a promotion at your current employer, or seeking a new job entirely.
Embrace your creative side and find overlooked ways to bump up your income even as you cut your spending.
5. Don’t Take on More Credit Card Debt
When you’re in a hole, the first step to escaping it is to stop digging deeper.
With each swipe of your credit card, you add not only more debt but more interest due on that debt. And when you fail to pay off your balance in full each month, you start paying interest on your interest. That often results in a downward debt spiral.
That said, sometimes in a true emergency you just don’t have a choice. If you have no money in your bank accounts, you still need money for groceries. Even cheap staples like pasta, rice, and beans cost money.
But that fancy face moisturizer you like? Leave that out of your shopping cart until you stop the bleeding.
6. Seek Financial Assistance
You’re not alone in your financial struggles. You can get help from government programs, from friends and family, even from your existing creditors. You just have to know where to look and how to ask.
In the case of job loss, you can file for unemployment benefits. These operate at the state level — check out this breakdown of services by state from the U.S. Department of Labor. While there, check for state resources to help you find a new job.
In some cases, you can defer payments on your student loans, especially if you lost your job. Talk to your lender about forbearance and deferment options if you can’t make your payments. You can also look into student loan forgiveness programs, employers who offer student loan repayment, or other ways to reduce your student loan debt.
Don’t be afraid to approach family and friends for help either. For example, if you have an expensive medical emergency, you could ask for help through crowdfunding.
7. Explore 0% APR Balance Transfers
If you have hefty credit card balances at sky-high interest rates, you could explore debt consolidation loans. But swapping one debt for another usually results in higher balances, not lower ones.
If your credit is in decent shape, consider transferring your high-interest credit card debt instead. Often credit cards offer an introductory period with 0% APR, including on balance transfers. In many cases, you can score 12 to 18 months with no interest on your balance. That’s often enough to give you the breathing room you need to pay down your balance.
Check out these low-APR credit cards, many of which offer 0% initial APR for over a year. It helps to have a high credit score, but you may still qualify with only fair credit.
8. Consider a Personal Loan
Let’s be clear: Personal loans are a bad solution to a financial crisis. But sometimes, a bad solution is better than no solution at all.
Because they don’t offer any collateral for the lender, personal loans come with high interest rates and low loan limits. Still, if you need cash right this instant to pay off a loan shark — or any other debt with even higher interest rates — you could apply for a personal loan.
9. Watch Out for Scams & Predatory Lenders
Not every apparent helping hand comes from people with your best interests at heart.
When you get in financial trouble, sometimes sharks smell blood in the water. For example, some “lenders” offer to buy your home at a steep discount and rent it back to you as a lease-option or worse, a contract-for-deed. They’re ready to evict you and keep your home if you default on them.
Read up on how to spot predatory lenders before accepting any loans. Trust me: They’re savvier than you are. They do this for a living, after all.
Also watch out for payday loans and paycheck advance apps. They often come with astronomical interest rates were you to calculate their actual cost as an annual percentage. Which, of course, payday lenders assume you won’t bother doing.
10. Go Easy on Yourself
You could flagellate yourself for getting into this mess. Or you could treat it as a learning experience and learn lessons that may help you avoid future financial pitfalls.
I’ve had my fair share of financial crises, and I teach investing and personal finance for a living. In fact, my marriage came close to collapsing under the weight of a financial crisis. Every adult experiences financial emergencies sooner or later, so cut yourself some slack.
You can’t see every potential threat coming, but you can lay the groundwork to prevent some financial problems, such as a financial midlife crisis. Follow basic financial best practices, such as saving at least 10 to 15% of each paycheck and setting aside at least one or two months’ expenses in your emergency fund.
Nowadays, I go much further than that, as financial security is one of the hidden benefits of the FIRE lifestyle. I don’t know what crises tomorrow will bring, but I know another crisis will hit me sooner or later. And I know that more money will almost certainly help me weather it more easily.
The best time to prepare for a financial crisis is before it happens — when life still feels normal.
But if that ship has sailed, you still have options. Start with an immediate spending freeze, with exceptions for only items needed for immediate survival. Think ramen, not ribeyes.
After stopping all the financial bleeding, reevaluate your earning potential. Brainstorm 20 ways to bring in more money. The first handful will be obvious, but by forcing yourself to brainstorm a few dozen, it forces you to get more creative.
Who knows? With an added jolt of motivation, maybe you can get that side business off the ground, or turn your hobby business profitable. When the dust settles and your financial situation improves, you might just find that your side hustle could become your main gig. And your lifestyle could be more fulfilling for it.