Getting Through Covid-19: Our Suggestions for Planning Your Finance in the Midst of a Global Pandemic
With outbreaks in more than 150 countries around the world, the coronavirus pandemic has moved beyond being just a public health crisis to an economic one as well. Businesses are closing down, individuals are losing their jobs and the prices of essential commodities are shooting up due to a decrease in the supply of these products. Hence, there are many individuals who may never get the virus but their wallets will undoubtedly suffer the effects of the pandemic.
In spite of the efforts of Governments around the world to sustain the flow of economic activities in their countries, economists from JP Morgan Chase, Goldman Sachs, Morgan Stanley, and many others predict a recession in the coming months. With these predictions, it is expected that individuals will make prudent decisions regarding their future investments. Hence, we have put together a few tips to help you prepare as much as you can for what lies ahead.
Create a Realistic Budget: There are two sides to budgeting: what you spend and what you earn. If your income has already taken a hit due to the coronavirus pandemic, you simply can’t continue to budget your money the way you used to before the pandemic. Your budget should reflect the current circumstances of your income so that you are able to spend 50% of your income on what you need, 30% on what you want, and 20% for investments and savings.
Categorize Your Expenses: Cutting costs can make getting through the current financial situation less stressful. However, to cut costs effectively and realistically it is important for you to know where and how you are spending. To do this, you’d have to make a detailed list of everything you spend money on in a normal month. Start with your fixed expenses (Everything for which you have to spend money each month to maintain a basic standard of living like housing, utilities, food, insurance, etc). Debt payment should also be on this list as paying your debts as and at when due help with maintaining a good credit score. After making your first list of fixed expenses, make another list of variable expenses.
This list will include expenses on such things as clothes, hobbies, entertainment, self-care, and personal care, recreation, dining out, and shopping among others. You will also need to make a third list for irregular expenses (expenses you do not make every month but are sure to make once or twice in the year). By categorizing your expenses this way, you’d have a clearer picture of what is essential and what you can cut out for a period until your income stabilizes.
Eliminate or Minimize Your Nice -to- Haves: In a pandemic, you should be pumping up your emergency fund and this will only happen by cutting some of your expenses. The first point of call is the non-essential items you can live without. Things like dining out, entertainment, clothes, travel, extracurriculars for kids, electronics and gadgets, gym memberships, and unnecessary subscriptions should be totally eliminated or reduced to the barest minimum. Also, if you currently outsource certain things you can get done by yourself now is the time to put them on pause. The goal here is to cut as much cost as possible from your budget to preserve as much from your income and savings as possible.
Pump Up Your Emergency Fund: Now is the time to get aggressive about pumping up your emergency fund. It is recommended that you keep three to six months’ worth of essential expenses in a savings account for emergencies like this pandemic so you do not fall into debt when you lose your job. A good way to beef up your emergency savings is to repurpose forgone spending. For instance, if you are working from home for the foreseeable future, redirect the money you are saving on commuting costs, lunch, dry cleaning, etc towards your emergency fund.
Invest in Yourself: Always wanted to start a side gig? Now is the time to do just that. By all means, you’d need to increase your stream of income or make yourself indispensable in your industry. Earn a professional certification, take continuing education, learn a new skill. You simply have to do what you can to rely less on your salary. However, do this in such a way that your real job will not suffer so that when it gets to the time for downsizing, you’d be valuable to the company.
Leave Your Investments alone: In times of instability and uncertainty, the best thing you can do for your financial health is to leave your investments alone. You may want to reevaluate your goals for investing to align with the times but by all means, let your investments remain as they are. Also, be wary of deals with regards to investments at this time. While many individuals might view now as the time to sell, consistency is a safer bet than juicy investment deals right now.