What to do with your finances during COVID-19

Tough times ahead

Let’s be honest, the next few months are going to be tough for all of us. As the whole world has gone into lockdown, our economy is going to suffer.

One thing most of us are forgetting is that we need to stop the virus before we can do anything about the economy. I have no doubt there are a lot of people feeling the financial pinch already.

The longer this goes on, the more damage is going to be done. In the coming months, more and more businesses will have to shut their doors, resulting in more people losing their jobs.

Never too late

It’s never too late to start preparing for a financial disaster. In uncertain times like this, the most important thing is to prepare for the worst-case scenario. In doing this, there is a good possibility you will come out on top when all of this is over.

Here are few changes you can start making now for yourself and your family.

Work out a budget

The number one thing you can do right now to help is to work out a budget for your whole family. Before you do that, it’s important to understand what a budget is and what it isn’t. I’m sure most of you have heard of yoyo dieting before. If you set up your budget like those failed diets we’ve all tried in the past, you’re automatically setting yourself up to fail. What I’m trying to say here is, don’t take your budget to the extreme.

The best way to budget is to plan your money,

So, you’ll need to work out:

  • How much money you currently have (savings)
  • What you have got coming in (income)
  • How much money is going out each month/week (expenses)

This will give you a basic idea of your financial situation. Our main aim here is to increase the savings. Obviously, this can be done by increasing your income or minimising your expenses. Having a clear picture of your regular expenses and spending habits will help you set up your budget.

The best way to do this is to write down all your expenses and divide them into two sections: fixed expenses and variable expenses.

Fixed expenses are classified as:

Mortgage or rent

Utilities and bills

Council rates

Insurances (house & content, health, car)

Credit card and personal loan repayments

Variable Expenses

Some of the variable expenses you might want to include in your family’s budget are:

Food

Household goods

School uniforms, textbooks and stationery

Medical/dental fees

Car/travel Expenses

Holidays

Entertainment

Now that you have your income and expenses worked out, you will be able to clearly see whether your expenses are higher than your income and why. Look for ways to eliminate unnecessary expenses. This can help you spend less.

If you’re already spending less than what you earn, you are in a very good position.

Elimination process

The next step is to go through your expenses and look for any fixed expenses you can make changes to. For example:

  • Refinancing the mortgage.
  • Consolidating personal loans and credit card debt.
  • Looking into cheaper insurance options. I assume right now that you have more time than ever to shop around.

Once you’ve done that, take a look at your variable expenses to see if there are any unnecessary expenses you can cut down on.

I don’t expect you to stop ordering takeout during the COVID-19 lockdown. I’ll be honest, that is one of the main things I look forward to right now.

Maybe you only order once or twice a week instead of three or four times though. Cooking meals at home are a great way to spend time with your family during the isolation period. Maybe you can get the kids to help you cook.

Most of us don’t have to travel to work anymore so fuel and travel expenses are another thing you can save on at the moment. Just go through all those expenses from the last two or three months and mark down whatever you think you can cut down on. This can provide a huge boost to your personal cash flow. Make sure that you put any savings towards your emergency fund.

Emergency Fund

For those who haven’t read my article on emergency funds, here is a brief run down:

An emergency fund is a stash of money that you put aside in case of an emergency. As I mentioned before, it’s never too late to start building an emergency fund. During a pandemic situation like this, if you are in a position to start an emergency fund or boost up your already existing emergency fund, don’t think twice about it. Do whatever possible to start or increase your fund – you will be thankful for having it to fall back on when things get tougher in the coming months.

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