How to maintain personal finance amid COVID-19
With COVID-19 cases soaring and making headlines around the world, it’s quite obvious to feel surrounded by uncertainty about many aspects of life, including personal finance. Even if you don’t get COVID-19 infected, however, the fallout could make you financially impacted. Hence, in this blog, I am going to talk about How to maintain personal finance amid COVID-19.
Throughout this tumultuous period, your health holds the utmost priority. Haven being said that; you should make all endeavors to stay healthy. Whilst taking care of your physical and mental health, maintaining your financial health during COVID-19 is equally important. And with having sound financial health, a feeling of Financial Security about the current and future financial commitments, aka Financial Well-being, persists. In my previous post “How one can maintain Financial Wellbeing in the COVID-19 times”, I’ve spoken about Financial Well-being in depth.
With a solid handle on your finances, you’ll be better prepared for whatever life throws your way in the coming weeks and months.
What is personal finance?
Doing a proper, goal-based financial management of your money and every aspect of it. Let’s understand it better. The financial management activities like budgeting, expense forecasting, banking, insurance (health, Life, non-life) premiums.
How to manage personal finance?
As I called out a goal-based approach, so these goals could be short term (like 3months to an year’s expense management, Vacation planning, etc) and Long-term (Kids education, kids marriage)
How to manage personal finance during COVID-19?
The havoc created by this COVID-19 virus shall not remain the same for long and forever throughout our lives. Once, the vaccine(s) are out and made available to the general outreach, the outbreak shall subside. So, we all need to manage our personal finances till then; even more promptly. Hence, I wouldn’t hesitate to call it a short term financial management.
Let’s take a closer look at how you can keep your personal finances in order as the COVID-19 situation develops around the world.
1. Re-Assess Your Budget
Every well-managed household works on a pre-decided budget. Usually, budget changes with changes in household income. Due to the uncertainty plaguing income, drastic measures may need to be adopted to ensure that expenses do not increase. Pull up a list of all expenses and financial commitments and segregate them as essential (must to have) and non-essential (which could be delayed).
Households need to re-evaluate their budgets and prioritize expenses as per relevance and need. They need to demarcate between necessary and luxury items and take a decision to forego the latter for the time being. It is crucial for households to take this decision for financial stability until the threat abates.
It will be ideal for households to toss out frivolous expenses and spend money only on essential items and services. Unessential expenses could be those on entertainment, gourmet meals, and fashion.
Save for rainy day!
It is always advisable to have budgeted expenses, savings, and an emergency fund. This fund can provide a cushion in trying times such as these. Households should immediately start creating such funds once the pandemic is over so that they are ready for any hardships in the future.
2. Stretch Your Savings Further
One potential impact of the current situation is that you could be required to stay home for weeks at a time. With that, you may lose your income for that time if your employer doesn’t offer paid leave or the ability to work from home.
Instead of panicking, focus on finding ways to stretch your money farther. A few ideas Worthing having a look at:
- Keep Re-prioritising your list of expenses
- Since you’ll be staying at home more, you’ll likely be able to easily save money that would have been spent on travel
- Restrict your dining out habits
In addition to these potential savings, you can find free ways to entertain yourself at home. For example, many libraries are offering their always-free resources such as e-books and audiobooks.
3. Boost Your Emergency Fund
If you’re lucky enough to be able to continue working from home, then consider boosting your emergency fund. Since you’ll be working from home for the coming months to maybe a year, so you’ll be saving on your regular commuting costs. Additionally, try to resist the temptation of spending money on impulse buys, Online Flash Sales/Online Festival sales, and end up buying stuff you would hardly need.
These few ideas could be prove out to be a game changer:
- Try to accumulate as much as possible and keep the funds liquid, so that those could be utilized to face any adversity
- Stay away from getting ambitious in the stock market(s)
- Don’t fall prey to Long term money locking commitments like Insurance plans/ULIP plans, etc
- You may explore less risky to moderately risky mutual funds, as they are anytime less risky than directly investing in equities
- One more easy way to boost your emergency savings is to save your tax refund. If you haven’t spent the funds yet, consider stashing it away to help weather any storms that come your way.
4. Take Stock of What You Have
Shelves across the country are being emptied of everyday essentials such as food and toilet paper. Before you give in to the impulse to panic buy everything, take stock of what you already have at home. Many of us already have well-stocked pantries that could help us survive for many weeks.
Personally, I am guilty of having enough pasta and rice on hand to feed us for a month thanks to a recent BOGO sale at my local grocery store. Plus, I have several bottles of hand soap in our bathroom cabinet compliments of a semi-annual sale that always seems to keep my cabinets full.
With that, I have not gone out of my way to clear the shelves of emergency supplies that I might need at some point. Instead, I realize that others may not already have these supplies on hand. I’d rather use what I already have and let someone who needs those goods today.
Take a look at your current pantry and bathroom cabinet. If you already have some supplies on hand, then consider holding off on stocking up. Your wallet and your community will thank you.
5. Apply for Loan Moratorium. Don’t miss the bus!!!
If the impacts of this virus have affected your income, then you may run into trouble keeping up with your bills. Without an emergency fund, you could find yourself in dire straits quickly.
Although it can be scary, make sure to approach the situation with a clear head. Instead of allowing late payments to damage your credit score for years, reach out to your lenders and landlord. Contact them as soon as you realize that you’ll be unable to make an on-time payment.
Forbearances are being offered as an initial step. This is a temporary pause of your mortgage payments. Once you’re able to resume payments, they’ll go over your repayment options.
Before you make contact, prepare to explain your current situation and how much you can afford to pay at the moment. Also, consider when you believe you’ll be able to resume your normal payments.
You might be surprised, but lenders may be willing to work with you throughout this difficult time. Most lenders will go out of their way to help you successfully navigate this difficult financial time, especially if you’ve consistently made on-time payments in the past.
6. Keep Calm and Stick to Your Investment Plan
One apparent impact of COVID-19 is the increased volatility of the stock market. Although it can be tempting to panic and sell your stocks during this time of crisis, that’s not a good option right now. In fact, choosing to sell your stocks now could result in a realized loss of thousands of dollars.
It can be extremely painful to watch the value of your nest egg crumble. However, it’s overwhelmingly likely that the market will recover.
Personally, I never planned on touching the money I have invested in the market until retirement, so I’m not going to change that mindset now. Instead, I plan to hold on for what looks like a wild ride ahead. I fully expect a bumpy ride, but I know that selling my stocks for a 20% loss is not the answer.
Evaluate your investment plan and find the willpower to stick to it.
7. Consider Taking Advantage of Low-Interest Rates
As the feeling of uncertainty takes hold around the world, interest rates are dropping. If you have a good credit score, then you can likely take advantage of extremely low rates for all kinds of borrowing.
If you have outstanding debt such as a mortgage or student loans, then now is the time to refinance. You could potentially save thousands over the course of your loan.
Although refinancing can involve quite a bit of paperwork, it will give you something to do from the comfort of your home as we tackle the weeks ahead.
8. Do not ignore credit card payments
Do not delay your credit card payments even during an economic full stop. Credit cards charge a high rate of interest on pending payments and directly affect your credit score. Hence, if there is a liquidity crunch, at least the minimum payments must be paid to avoid exacerbated bills later.
Other bills such as electricity and gas should be paid even in the lockdown period as they are essential expenses. This will ensure a lack of interest on delayed payments that worsen the cash crunch.
The Bottom Line
COVID-19 has brought the world is on edge, but that doesn’t mean to your personal finances too. Take action to build and stretch your emergency fund before the virus impacts you in any way. If you have already been affected by the virus, then take steps to mitigate the long-term financial damage. Else just follow the advice while customisations to make it fit for your purpose.