Budgeting in a Crisis (COVID-19)

Budgeting in Crisis (COVID-19)

The sheer enormity of current events can leave us battling to comprehend what to do and where to start.

Change is most definitely being forced upon us and we are all feeling its impact. One of the urgent concerns for many people is cash flow. How can you preserve cash in the middle of a global crisis, when you may be dealing with reduced income, job loss, or other impacts on the availability of your money? This post offers some ideas for actions you can take now to help preserve your cash.

First Things First

It is important to first acknowledge something that is often completely omitted when it comes to budgeting. There is the practical stuff and then there is your mindset, your relationship to money. Both impacting on each and your likelihood of success or not.

For now being more specific right now due to COVID-19, our focus for here is Budgeting and Preserving cash in a crisis—practical actions you can take.

To look at Creating a clearer money mindset in a crisis—click here.

It is worth repeating – Each of these areas affects the other, and both can help you find ways to preserve cash.

Budgeting and Preserving cash helps you increase your financial fitness, decrease stress, increase control, and create some much-needed balance in a world that has been turned upside down by the global COVID-19 pandemic.

Let’s look at the practical side of things first.

Preserving cash in a crisis

This is about stretching out the time that your cash will last. We will focus on the immediate actions you can consider now and highlight some things to be wary of or avoid for as long as possible.

Firstly though—whatever your financial circumstances are, it’s so important to be gentle and kind to yourself and others. We are all experiencing a huge adjustment and steep learning curve, and our best chance of coming through this in good shape is to support and respect each other and take care of ourselves responsibly.

Okay, let’s jump in.

Your 10 Step Guide to Budgeting in a Crisis

 

Step 1. Grab a piece of paper

Alternatively, open a new Word or Excel document whichever is your preference. Create atleast three columns, Essential Living, Want but not critical and Other.

Step 2. Categorise Your Expenses

This first exercise is about focusing on what you can control and increasing your understanding of your immediate or absolute essentials.

Also it is always important to personalise your lists so that where I have suggested something make sure you personalise it add/subtract what is actually relevant to you. For instance what I think is essential to me might be completely different for you.

List all your expenses into the three categories mentioned. For example, in our current socially-distanced world:

  • Essential Living would include mortgage, rent, food, electricity, internet, phone, etc
  • Want But Not critical would include clothes (we probably have sufficient for the short term), car, movies, cafes, restaurants, Netflix and other subscriptions.
  • Other might include hobbies, travel etc

Bare in mind that if this is the first time you have done this or if you haven’t done it for ages then it is important to acknowledge you are likely miss the odd expense for what ever reason. When you think you remember one that you missed then just add it, no fuss, just add it apply one of the following actions to it where applicable.

Step 3. Cancel the obvious ones

This is about personal needs and preferences, so adapt this to your own circumstances. Think about what you don’t need and cancel it to free up some cash flow. Focus on the easiest items first.

Beware though read this first – check this article on Financial Pitfalls to Avoid.

Step 4. Switch to free services

Some subscriptions can be swapped for free options—for instance, cancelling your Netflix subscription and watching SBS On Demand and ABC iView.

  • Be aware that some providers offer free subscriptions for a short period. If you sign up to these then make sure you put a diary reminder for when the free period finishes so you can cancel it before you’re charged, if that was always your intention

Step 5. Put larger expenses on hold or request a waiver where possible

Some current examples include (note this space is changing rapidly so it will be worth double checking what other options are available):

  • Banks offering to pause mortgage payments for a period
  • Residential landlords offering reduced rent
  • Commercial landlords foregoing rent for a period (with a time set for review)

Step 6. Review frequency of payments

Some expenses are cheaper if you pay yearly rather than monthly, quarterly or fortnightly. However, this demands more cash in the immediate term, so it may free your cash flow to switch annual payments to monthly, even if that means accepting the higher cost for a short period. If you do this, make sure to keep a note in your calendar to remind yourself to switch the payment back to yearly when your cash flow stabilises.

 

Step 7. Find cheaper options

Review all your bills to see if you can make any adjustments to reduce costs. For instance, do you need your full mobile phone plan? Could you switch to a different, cheaper plan?

Step 8. Plan your meals

This is an area where you can potentially save a lot of money. Check out my blog on meal planning for tips that can save you cash, time and stress.

Step 9. Actions to Avoid

There are going to be some budgeting Financial Pitfalls to Avoid for as long as humanly possible.

Step 10. Get Ready for a Swap Meet

Given social distancing requirements and your potential cash flow shortage. While you are hold up at home practicing self distancing go through wardrobe for instance and set aside the clothes that you haven’t warn for ages and see if your friends would like to do a clothes swap. Of course the swap meet can only happen when safe to do so.

Extra Tips

COVID-19 has presented us with a global crisis, but do bear in mind that there is always things we can do to help ourselves and find support. I know that some of this is much easier said than done. It highlights the importance of your money mindset and the need for support and so follows are some ideas that will assist:

  • Your money mindset and relationship with money overall is the key to being able to really nail this. If you can establish a clear and healthy money mindset in the midst of this crisis, you have the chance to create a rock-solid foundation that will serve you for the rest of your life. Imagine having a relationship with money that helps create enjoyment and balance in your life. Working towards this now can make you more confident, reduce your stress around money, and help you improve your financial fitness now and for your future. To get started, click on the exercise Creating a clearer money mindset in a crisis.
  • Start with easiest actions for you first – Other actions may be easy to implement right away. Start with the simplest step first. Keep in mind that all of it counts, even changes that only save a few dollars here and there. When you add everything up, these small steps can save you a fortune, and free up some much-needed cash now.
  • You may need to talk through some of these ideas with your partner, trusted friend or other adviser to help you decide the best actions.
  • You’re not alone in this, so don’t be afraid to call on support. Your other resources may include your financial planner, accountant, and business or money coach—each of these specialists have their areas of focus and strength and I encourage you to contact them, even if it is just via email. Even if you are not sure.
  • My Offer. I am offering a free 30-minute money coaching session to help you either get started and/or unstuck.
  • The National Debt Helpline is a free service and also be able to assist.

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 (It is important to note that I am not a financial planner or accountant, mortgage or insurance broker and that this article does not take into account your personal or financial position. This post is offered as a general guide for potential actions you could consider, depending on your circumstances).