Are you feeling the financial strain from coronavirus? Whether you’ve taken a pay cut or your job is on shaky ground, with a little financial planning you can cushion the blow and get back on track post-COVID-19. These money-saving tactics and budgeting tips will help you weather the storm.
First Priority – The Essentials
It’s easy to stick your head in the sand and keep spending like normal. But pretty soon you’ll find that you don’t have enough to pay for groceries or utility bills, or worse your mortgage/rent. If your household income has been affected through a layoff, reduced hours or temporary pay cut, then you need to set a new income baseline and work from there.
Next, you need to look at the absolute essentials you need to pay to keep your household running. For most people the list will look like this:
- Rent / mortgage payments
- Utility bills
These are the expenses that have to take first priority if you want to stay afloat now and post COVID-19. Most of these will be fixed expenses but you may want to adjust your grocery expenditure to the most basic level if you’re really struggling. You don’t want to go hungry, but this isn’t the time to be splashing out on expensive food items either.
Second Priority – The Nice-to-Haves
Once you’ve looked at how much you need to cover the essentials, you may have some money left over for some nice-to-have items. During shelter-in-place orders these can include things such as:
- Online takeout deliveries
- Online shopping
- Electronics and gadgets
- Streaming subscriptions
But as social distancing restrictions are eased, you might be heading back to normalcy with items on your agenda such as:
- Dining out
- Going to the gym
- Hair/beauty appointments
- Dry cleaning
- Day care
- Lawn care
Your nice-to-haves are the key areas you need to review, especially if you’re struggling financially and/or relying heavily on your credit card. This is where you can create new savings by cutting back or cutting them out completely. Right now, having some extra money in your account is the most important thing, because you need it to create a financial cushion.
Create or Build Up Emergency Funds
An emergency fund can be your saving grace in a crisis, and if you’ve had the foresight to create one prior to COVID-19, then you’ll be glad you did. Experts recommend your emergency fund consists of three to six months’ worth of salary, which might seem a lot but when there’s bills to pay and mouths to feed, even a few extra thousand tucked away can help you through a tight spot.
If you’ve had to dip into your emergency fund during the coronavirus, then one of your main financial planning goals post COVID-19 should be to rebuild your savings. Once you’ve covered the essentials, any savings made from your nice-to-haves should go straight into your emergency fund. If you don’t have one set up, then now is the time to open a high-yield savings account and deposit contributions. It will give you much needed peace of mind and set you up for the future.
Pay Back Debt
The lack of an emergency fund may have forced you to borrow money during the coronavirus. If this is the case, then you need to look at how you can pay it back quickly. The last thing you want is to start spiraling into debt as it can be hard to get out of. While focusing on paying off debt shouldn’t take priority over building an emergency fund, it’s still important to deal with it in a timely manner.
The Debt Avalanche and the Debt Snowball methods can help.
Debt Avalanche. This is where you make minimum payments on all debt, then use any remaining money to pay off the debt with the highest interest rate.
Debt Snowball. This involves paying off the smaller debts first to provide some quick wins so you feel motivated to tackle the larger debts.
Which is better? It depends on your appetite for paying off debt. The Debt Avalanche method will save you more in interest payments, but the Debt Snowball allows you to see instant progress.
Another tip is to consolidate high interest debt from credit cards into a personal loan with a lower rate or transfer the debt onto a balance transfer card with a 0% promotional rate. This will give you a chance to pay down your primary debt without accruing large amounts of interest.
Claim Government Assistance
Don’t miss out on any disaster financial assistance from the government you’re eligible for. You may be able to qualify for unemployment benefits or paid leave, and also for help with food, housing bills and more. This is a great opportunity to supplement your income, boost your emergency fund, and pay down debt.
- Economic Impact Payment – automatic payment of $1,200 for individuals and $2,400 for couples with an additional $500 for each child. Prorated over a certain salary earned.
- Unemployment Benefits – Workers, including self-employed people, who became unemployed permanently or temporarily due to coronavirus measures can receive unemployment benefits. Typically helps replace about 45% of lost wages.
- Home Loan Relief – Those with federally-backed mortgages can get reduced or postponed mortgages for up to a year.
- Federal Student Loan Payments Suspended – Payments, collections, and interest are being waived until September 30 but you can still make payments if you choose.
Start Your Post-COVID-19 Financial Planning
While some things might be beyond your control at the moment, your finances are one area that you definitely have the power to change. Claiming government assistance, paying down debt, and identifying areas where you can make new savings to bulk up your emergency fund are all positive budgeting moves to get your finances back on track post-COVID-19.
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