During this pandemic situation worldwide, people from every corner of the world are facing devastating financial downtime. Approximately 22 million Americans have become unemployed and applied for jobless benefits since the pandemic started. People are having issues with their household budget even if they have more than one person who earns, and collecting unemployment benefits, once any of the earners face a job loss.
Here are a few tips to manage your finances during this tough situation.
1. You should prepare a long-term financial plan
Making a long-term financial plan will be a great step to handling household budget at the time of any crisis such as the COVID – 19 outbreak. During such times, it’s important to initiate a plan and take necessary action especially when you want to save your finances. You can achieve this goal by taking help from a financial expert, but you may also do this all by yourself.
When you make a long-term financial plan, you must consider your essential expenses first such as medical expenses, rent, groceries, utilities, and emergency savings.
Then you should focus on short-term and other long-term financial goals such as paying off debt, saving for retirement, kids’ education expenses, etc. Establishing financial plans in such a way can help you to maintain a budgeting system.
2. Set up a proper budget
It is a fact that no matter how much you earn, you might always hesitate to set a budget for your household expenses. But as a matter of fact, this is the most important step which the majority of the employed people would forget to implement.
So, to manage your finances, you should also prepare a solid budget for your overall expenses every month. If you have difficulties to allocate money for every cost category, and track every dollar spent, you may set a fixed amount as a monthly budget each month for making every expense.
Fix the amount as per your need and stick to it until the month is over. If you have to spend more than what you set aside, then deduct that amount from the next month’s budget.
For example – If you set $5000 as an overall monthly budget, and spend $5500 in September, then you should deduct $500 from October’s $5000 budget and manage that month with ($5000 – $500) = $4500, no matter what happens. This way you can grow a sense of control over your money.
3. Track your spending habits
Being stuck at home in lockdown pushes you towards more spending via online shopping, ordering foods, multiple online subscriptions, and various other things. You may think that as you aren’t going out, you are saving a lot out of the transportation cost. But, if you aren’t spending money on transportation, but spending on other things, it may affect your finances.
So, tracking every expense each month is necessary to control your money. By controlling spending habits, you can save a lot, more than your monthly transportation cost itself.
4. Put your focus on paying off old debts
Once you prepare a solid budget plan to fight against the pandemic, one of the most important factors that you need to focus on is paying off old debts. Some financial experts may suggest avoiding debt payments for the time being and focusing more on increasing savings.
But this isn’t a wise decision. You might increase the amount of savings in a month. But not making your debt payments may increase the interest charged and also add penalties to your existing debts.
Paying off debt is important, along with the savings. Don’t blow it off, unless you are prepared for the worst. Saving for emergencies may help you prevent more debts while making debt payments will help you to eliminate the existing debts.
5. Save as much as possible towards an emergency fund
As I said before, during this financial crisis caused by the pandemic, a solid emergency fund can be your backbone, especially if you don’t have a stable paycheck.
Financial experts may suggest you create an emergency fund with six months’ worth of essential expenses if you expect a financial crunch soon. But this strategy might become difficult for people having an unstable income, and also becomes quite hard for households with higher earnings and high expenses.
If you can’t save that much amount initially, then you may choose a little flexibility in your strategy. You may start creating the fund with 3 months’ expenses, and gradually increase. After that, every month you have to contribute a fixed percentage of your paycheck into your emergency fund. This way with the time you may create a solid emergency fund to fight against financial issues.