Every ten or so years, a financial crisis will hit the global markets. This usually causes stocks to plummet in value, the housing market to slow and people to panic when it comes to their own wealth management.
Due to the coronavirus, many people have been furloughed, switched to working from home or lost their full-time employment. This means that individuals have begun dipping into their savings accounts, spending less money and pulling their investments.
In this blog post, we give you some key tips which you can use when it comes to planning for financial crises such as the coronavirus.
We will cover:
Create a crisis budget
First things first, creating a crisis budget.
This involves looking forwards, to the future, and considering the issues you could encounter.
This is not a quick fix plan and it will entail you looking at how much money you currently earn, what liquid assets you have and how much you might have saved.
In normal economic times, it can help you reach any financial goals you might have. Such as getting up-to-date on any debt repayments, retirement planning or any saving ambitions you may have.
However, if you are facing tough financial times currently, due to the coronavirus, or have suffered from them in the past because of the economy, having a crisis budget in place now, might save you some time and stress in the future.
A crisis budget is good to have in place because it prepares you, your family and your business for the worst case scenario. Nobody could have predicted the coronavirus and how it has impacted our economy, however, by having a financial plan, you will be ready for anything.
Minimize your monthly bills
Creating a crisis budget is all about putting aside money that you can save every month.
For example, every month you will have money going out on bills. Whether it is your mortgage, rent, utilities or phone contract.
That is unpreventable and for the most part, predictable.
You can confidently predict what money you will be left with at the end of every month. However, when it comes to creating a crisis budget, you need to ensure that you are saving as much money as you can.
A perfect example of this is your phone contract. Check with your supplier that you are getting the best deal for your phone. If you are paying for unlimited minutes and you don’t use them all every month, you could easily be overpaying for your usage.
Whilst these sound like artibutrary financial changes, these could really make a difference when it comes to your monthly outgoings.
You can also minimise monthly money wastage by simply cutting out a few luxuries like eating out, shopping at the weekend or buying lunch everyday at work.
All of these extra pennies you save can go into a savings account, which will be your survival savings.
Save 20% of your salary
Cutting down your monthly expenditures is one great way to save, but also being strict with yourself and your paycheck is another.
When you get paid, take 20% of your earnings and put them in a separate, less used bank account.
Soon, you will have plenty saved up and you will be more prepared for when crisis strikes.
Companies like Monzo are excellent when it comes to helping you save. When taking out a card with Monzo, you can set yourself goals, budgets and targets. The app will send you notifications when you overspend and when you underspend, so you will have complete knowledge about what is happening with your financial situation.
Whilst, 20% of your paycheck is a good amount of money, you can save however much you feel comfortable with.
Closely manage your outgoings
Cutting down on your monthly expenses and saving a chunk of your paycheck every month are extremely important ways that you can begin adding to your survival savings.
A less proactive, but still equally effective way to save is monitoring your outgoings.
Every couple of days, check back with your mobile banking app and see what you have spent that week so far.
For example, if you see yourself buying a take-out coffee everyday, reconsider that cost. Again, whilst this might sound like tiny expenditures, pennies do make pounds!
If you are actively seeking a certain goal when it comes to creating a crisis budget, you could monitor your spending even closer by creating a spreadsheet.
Programmes like QuickBooks and Excel can help you put all of your data in one place, where you will be able to clearly see where you're overspending, where you are saving and where to cut costs.
Whilst this might sound more time consuming than simply checking your bank account every few days, it could really make the difference.
This tip goes hand in hand with managing your outgoings closely.
Whilst you might be used to budgeting your funds monthly, along with getting your payslip, budgeting on a weekly basis could offer you more insight and allow you to plan your outgoings down to the penny.
All your extra savings can be put aside. As soon as you see the numbers going up in your survival account, you will begin feeling less stressed and how these tiny changes are benefiting your financial future.
Finally, is that dreaded credit card debt.
Did you know that in America, 80% of the population are caught up in some kind of debt?
In England, it’s 55% and in the UAE it’s 33%.
In short, having debt is a part of life and if you are good at paying it back, it can also be a viable way to increase your credit score.
However, when you are adding to your survival fund, it’s important to reduce your debt as much as possible.
If you use a credit card regularly, you might find that the interest rates are impacting your ability to save every month.
These charges could be the difference between you having survival savings and not. Try to at least pay the minimum charge every month, or clear the debt completely.
This will improve your ability to add to your savings and it takes away at least one monthly cost you might be experiencing.