- March 20, 2020
The world is reeling as a result of the COVID-19 pandemic. Various countries are already in a state of emergency with measures being enforced to mitigate the spread of virus. These measures, like travel suspensions and social distancing exercises, have already impacted normal business operations.
Given this worldwide crisis, your finances may already be negatively impacted. While it would be ideal that you already have an emergency fund set aside for times like this, if you don’t, it’s not the end of the world.
Here is some financial guidance to help you through this emergency period:
START PUTTING MONEY ASIDE
If you haven’t taken a major hit to your income as a result of COVID-19, it’s not too late to put a few dollars aside just in case you do.
Decide on an amount and automate the savings as a deduction from your salary. This automation does two things: it makes saving something you don’t have to think about and helps you to reduce social interaction by not having to physically go to the bank.
We like to use the 50/30/20 rule to help you decide on the amount you should save. 50% of your income should go to essentials like housing and utilities, 30% toward non-essentials and 20% toward financial goals like savings and paying down debt.
MANAGE YOUR EXPENSES
At times like this, the money you would set-aside in a non-emergency situation may not be enough. You may need to reassess your spending, cut back, and divert some extra money to your emergency fund.
Look at any subscriptions you have that you can cancel. Maybe you can downgrade some of your services like your mobile plan, cable or internet. You may want to cancel your gym membership as well.
Essentially, you should look at adopting a more restrictive budget for your spending. Try using a prepaid card for your purchases instead of cash or credit/debit cards as these may encourage excess spending. Load your prepaid only with what is needed to cover your expenses.
You may also want to consider shifting some of your long-term savings into short-term savings. This may mean reducing your monthly retirement savings and increasing what you put into your emergency fund. You can always switch back once the crisis is over and the risk to your finances is reduced.
EMERGENCY BUDGET
It is important that if you do not have an emergency fund, have lost your main source of income or anticipate a major change in your financial situation, that you consider switching to an emergency budget.
Your spending habits have probably changed already. You’re probably buying more grocery instead of going to the movies or having dinner at a restaurant, for example. Your emergency budget is similar in that it focuses only on essentials instead of discretionary spending.
CONSIDER ALTERNATIVE CASH FLOWS
There may be a temptation to revert to your credit card as a means of cash-flow during the time. Avoid this temptation as best you can as credit cards often come with high-interest and can make your financial situation worse.
As an alternative, see if you qualify for low-interest credit like a loan against your investments, i.e. stocks and bonds. Products like a Margin Loan can be used for any purpose and offer flexible repayment terms. Check with your investment manager to see if this option is right for you.
As a final resort and in a extremely dyer situation, you may need to tap into your retirement savings. While this would not be recommended under normal circumstances, in the event of a crisis, your retirement savings could be an additional resource. However, this option should only be considered if you are at least 20 years away from retirement. Once your finances are stable again, make replacing the funds removed from your retirement savings a matter of priority.
GET HELP
The COVID-19 pandemic is an unexpected event; so don’t feel embarrassed if you need help managing through this crisis.
Reach out to your bank on their response to the pandemic. There may be some ‘wiggle room’ as it relates to mortgage and credit card payments in the short term as well as some long-term concessions. The key here is not to wait until you are behind on your payments before you reach out. Be a step ahead by finding out what your options are.
THE BOTTOM LINE
These are uncertain times but that doesn’t mean you cannot be in control of your finances. The important thing is not to panic or make any rash financial decisions. Instead, get advice from professionals and stay informed.