How to set up a quick spending and investing plan in times of uncertainty.
Money is getting tight for many Australians and New Zealanders. With non-essential businesses forced to shut, many people are suddenly out of work or are working reduced hours. There is no clarity about when the pandemic crisis will pass and, in the meantime, we still have to pay bills and feed our 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 shopping centres to buy clothes or go out for lunch, and shops offering many “fun” wants are no longer open.
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 need to make sacrifices now 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.
This is a spending and investing plan. And here are some ideas for how to set it up.
1. Taking care of the bills
Add up the cost of all your 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
- Can do without
Then work out the total cost of all three categories.
3. Stop the leakage
While many “fun” things cease, you can now stop the leakage: Gym memberships, other memberships, apps that you can no longer use. Turn those off and don’t waste the money.
4. Managed debt
The biggest debt you'll face each month is usually the mortgage or rent and paying off your credit cards. Don’t rack up the credit card debts 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.
I have always viewed holidays as a need—we work hard and deserve some down time. Your mental and physical health is very important. Having said that, travel is limited at the moment. You'll likely be spending your Easter holidays 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 for a 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 at the moment, 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.
8. Tap into help
Many financial institutions are offering relief during these unprecedented times. Find out what they are and how they may apply to your own circumstances. Also, keep an eye on 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.
Note: This is general advice only and you should seek advice specific to your circumstances.