Money is getting tight for many Australians. People are suddenly out of work or have reduced hours. There is no clarity about when the pandemic crisis will pass over and, in the meantime, people have to pay bills and feed families.
When designing a budget for tough times the first thing to look at is needs versus wants. I know when I started my business I had no income for a long time. I quickly had to question whether I needed certain things.
With social distancing protocols there are probably fewer people going to the hairdresser, nail salon or catching public transport. There is also a clear incentive not to go into shops to buy clothes or go out for lunch and many “fun” wants are no longer open.
Also read: How to recession-proof your money
If your income has suffered a hit then it’s important to let go of your former lifestyle. The hard times won’t last forever, but we still need to make sacrifices to weather the storm.
Some might call these suggestions a ‘budget’. I don’t, because it conjures up negative thoughts—not dissimilar to the word ‘diet’. Things you can’t do, can’t have, unrealistic and unmanageable restrictions. That’s not what we want to hear right now.
So here are some ideas for how to set up a spending and investing plan.
1. Taking care of the bills
Add up the cost of all bills. Generally, bills don’t change. Total up all the rates, electricity, rego, insurances, fees for memberships, and groceries. Groceries are roughly the same each week. Divide the year’s total by how often you get paid. If it’s monthly, divide by 12; weekly, divide by 52; fortnightly, divide by 26. Put that away in a separate account every pay.
The Australian Government’s MoneySmart website has some great tools to help you calculate your expenses.
2. General spending
Run through your credit card and your tap and go account to see what you spend. Then decide what your real needs and priorities are. Break this into three categories – need to have, nice to have and can do without. Then work out the total cost of all three categories.
3. Stop the leakage
Whilst many “fun” things cease, you can now stop the leakage i.e. gym memberships, other memberships, apps that you can no longer use. Turn those off and don’t waste the money.
4. Manage your debt
The biggest debt each month is usually mortgage/rent and paying credit cards. Don’t rack up the credit card when you have no certainty of income.
If you are using the credit card for points, ensure you have the cash set aside plus an emergency fund to protect you. Contact the bank about options regarding mortgages at these times.
5. Re-plan your holidays
We work hard and we deserve our down time. I have always viewed holidays as a need. Your mental and physical health is very important. Having said that, travel is limited at the moment. The Easter holidays is likely to be at home, so plan for a “camping at home” holiday.
Meanwhile, you can think about where to go when everything returns to normal and plan for it. Work out how much you might need to holiday and plan for that.
Set up your online banking to make automatic transfers where possible. If your bank offers additional savings accounts at no cost think about opening accounts for each of your expenses.
I call these ‘pots’ of money. You’ll have a bill pot, a general spending pot, and a holiday savings pot. With automatic payments your plans come together with minimal management.
7. Review and update
Circumstances change. And these days things seem to be changing hour to hour. Your money plans aren’t set in stone and are designed to be flexible and respond to your needs.
Also, keep an eye on the government announcements. As the response to the pandemic evolves so will opportunities to seek assistance. Check whether any of the assistance packages apply to you.
These difficult times will pass. It may get worse before it gets better. But, there are some things we can control. If your finances are in a secure place, and you know where you stand, you’ll feel a lot safer as the world changes around you.
Helen Baker is a licenced Australian financial adviser and author of two books: On Your Own Two Feet – Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce – Your Survive and Thrive Financial Guide.
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