Money in the time of Covid-19 is an anxiety-inducing topic. This is a challenging time and we have a “new normal” that we must adapt our lives and our finances to. When life gets this unpredictable, the best thing one can do is go back to basics. Here are some of my 2020 money management tips.
Beef up your emergency fund
An emergency fund is a separate savings account that one creates to pay for unforeseen expenses such as medical bills, unexpected travel and loss of income. Your emergency fund should ideally cover at least 3 to 6 months of your expenses. This amount should be placed in a highly liquid, easily accessible and low-cost account. The yearly interest earned should beat inflation and most importantly your capital should be protected. This can simply be done by having an account at a different bank, a money market unit trust, or a 7-day notice account. The key is to be able to access your money when you need it without incurring any penalties.
Due to the uncertainty of life in 2020, the best thing you can do is beef up your emergency fund by increasing your contributions, if your budget allows. Knowing that you have a safety net should your financial situation worsen will keep you less stressed and will break the hand to mouth pattern that we often find ourselves living in.
Pay of your debts
While interest rates are at an all-time low, the best use of your money is to pay off all high-interest consumer debts. This includes credit cards, personal loans and store accounts. These types of debts attract high-interest charges that make them harder to pay off as time goes on, take advantage of the low-interest rates and allow yourself to become debt-free.
All the advice you have heard about debt before Covid-19 remains relevant now. Start with your most expensive debt, this is not always the biggest debt but the one that costs you the most in interest to pay back every month. Once you have paid off the most expensive debt, reroute your instalments into repaying a different debt using the same high-interest method.
Now is not the time to spend recklessly. Lockdown forced us to completely stop eating out, going to malls and socialising. This has freed up so much money in our budgets. What did you do with that extra cash?
Consider all the extra frills in life that you survived without. Why not continue your life of frugality and skip that everyday cup of coffee? Eat out less, reduce your alcohol intake (yikes!), exercise at home or request to work from home a few days a week to save on the commute.
It might not amount to much now but you are creating saving habits that will serve you in the long run.
Any good manager plans for the worst- and best-case scenarios. As the manager of your finances, you need to plan for every possible outcome. Possible worst-case scenarios to look at are losing your job, getting Covid-19 and being hospitalised, your partner getting retrenched, a drastic reduction in income, not being able to pay your rent or mortgage.
While it might not be possible to plan for every eventuality proper planning allows one to prepare for uncertainty.
No doubt this year started with new challenges that threw us all for a loop. Survival in nature, in business and life, is about adapting to change. The saying goes adapt or die. As life slowly returns to the “new normal” stick to those new money-saving habits you took on during lockdown.
Don’t let the downs of 2020 define your finances that you still have full control over. Keep a watchful eye over your money, find new ways to earn an income, pay off debts and save every dollar for “just in case”.