How to turn the pandemic problem into a plus: Proactively managing your finances.

With more time indoors because of COVID, it presents a good time to do something constructive with that time including getting on top of your finances, or at least, not allowing yourself to drown in them.

With more time indoors because of COVID, you may have recently found spending more time staring at a screen, whether working or seeking alternate employment, considering investment or business opportunities, WhatsApping, Tik-Toking or Housepartying. While this supports incomes, fills time and provides social connection, it also presents a good time to do something constructive with that time including getting on top of your finances, or at least, not allowing yourself to drown in them.

Below we have compiled a guide for three budgeting needs:

  1. Managing your day-to-day finances (plus saving for a treat when the lockdown ends);
  2. Ensuring a safety net in the face of uncertainty or emergency; and, 
  3. Planning for a larger financial investment. 

Consideration of these questions can help you, no matter what your financial goals, to use this time to your financial benefit.

1. Managing day-to-day finances

Activity time:

Grab a pen and write down everything you’ve purchased in the last week and how much it cost. Now, group each of these expenses (e.g. food, household items, rent/utilities, guilty-pleasures etc.) and ask yourself:

  • – Which group are you spending the most money on?
  • – Does this look right? 

Next, divide your monthly income by 4.4 (there’s a little over 4 weeks in each month). 

  • – If you spent like this each week, would you have any money left over?
  • – Do you have enough money for the things you’d like to spend money on (holidays, investments, savings)? 

Consider the voluntary expenses, and those that are unavoidable (phone, internet, rent, utilities etc.)

This same exercise can be completed for a month or even a year, though you may need to look through your credit card/net-banking summary etc.

Reflection:

It’s all very well and good to write a budget, but these budgets need to be based on facts.

  • – What do you actually spend money on?
  • – If there is money remaining, are you using it productively (savings accounts, investments, gold bricks)?
  • – If there isn’t, where could you cut back on costs, or shop more efficiently? 

Force yourself to do this exercise and set spending and savings goals. Hold yourself accountable to the goals you set, revisiting the exercise frequently to refine, keep yourself honest, and stay on track. Nice!

2. Ensuring a safety net

Activity time:

Force yourself to consider the worst-case scenario (Job loss/redundancy/ business closure or disruption to the supply or demand of your business). Unfortunately, as we know, these circumstances are a reality for an increasingly large portion of the workforce. 

  • – What would this mean for you?
  • – How long could you financially survive with the subsequent loss or reduced income? 

Now that you have thought about the worst case, grab a pen and write down how you could act now or in future to mitigate the risk. For each possibility, write 2-3 dot points of action you could take to give you back power. 

  • – Is it looking to divert resources to reduce cost or increase revenue? 
  • – Increase savings/cash on hand now to create a buffer? 
  • – Create new sources of revenue now or into the future?

As a rule, everyone should have 3 months of income saved in case of an emergency. Obviously, this might be an impossibility, given that the emergency is happening now, but it is never too late to start saving.

Reflection: 

For both employees and business owners, this uncertain future can be a cause of stress and sleepless nights. One way to put your mind at ease is to prepare and understand your options. You’ve faced the worst outcome in a calm, logical way (not with your mind-whirring at 3am) and you now have a plan and control over your future. Well done.

3. Planning for a larger financial investment

Activity time: If the time indoors has solidified your desire to get a holiday home, start a new business or any other large financial investment, now is the time to start planning for it. Write down your idea/dream/wish. Write down how much it would cost (initial investment + ongoing items such as maintenance, rates, repairs, additional expenditure) then write down how much money you have saved now. Consider your other financial commitments plus those of your family. 

  • – How bad do you want it? 
  • – What are your timelines? 
  • – Once you’re clear, start researching to get the detail you need: how much money do you need? 
  • – What lending options do you have? 
  • – How can you realise your dream as cost-effectively and as quickly as possible?

Reflection:

Interest rates are the lowest they have been for years, while the federal and state governments have multiple initiatives underway to boost the economy and benefit you (small business loansgrants and programs). Finally, financial planners and institutions can help you to make your dream a reality. If you have an ambitious financial goal, put some steps in place towards it.

Finally, we have been given the gift of a slow-down; time to pause, consider and determine our own paths forward. Whether you want to get a handle on your finances, prepare for a further slowdown, or start saving towards a larger investment, now is the time to proactively manage finances, and feel better for doing it. It starts here, now, with you.


Article originally appeared at https://yourfinancialwellness.com.au/

Any advice given is of a general nature only and does not take into consideration your personal circumstances. Please consider the appropriateness of the advice before acting.

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