Top 10 tips for managing a budget in a crisis

29 April 2020

The impact of coronavirus is being felt by people and businesses across globe. What started as a health crisis has quickly turned into an economic crisis - and with the increasing levels of uncertainty, it’s understandable for you to be worried about your finances. It might feel like everything is out of your control – particularly if you have experienced a loss of income due to illness or work place closure. However, there are a number of steps that you can take to help safeguard your finances and stay afloat during the difficult time.*

1) Review your expenses

If it’s important then you’ll find a way. Some bills must be paid before others, and if you can’t afford to pay them all, then the time has come to prioritise. Cutbacks are never fun but it’s a necessary step to your recovery. And you don’t have to look for major cuts. Small savings – such as losing premium streaming services – add up and they can go a long way towards protecting your finances.

2) Contact your creditors

If, after you’ve constructed your budget, you’re concerned about paying essential bills you’ll need to make sure you talk to the people you owe money to - before it becomes a problem. Believe it or not, it’s in the best interests of lenders to help you make your payments on time. Mortgage lenders are offering support if you have to take time off work because of coronavirus, including a repayment holiday of up to 3 months. The decision to offer support will be decided on a case-by-case basis, but your options will likely be less if you await the arrival of threatening letters in the mail. Help yourself before it reaches that stage.

3) Check your insurance policies

In these unsettling times, you might be looking for some protection. Check whether you have any insurance policies that might replace some of your income in the event that you are unable to work. This can include payment protection insurance, mortgage payment protection, sickness and unemployment insurance. If you have any questions about what your policy will cover in relation to the impact of coronavirus, then you should check with your insurer to find out more.

4) If you feel you need it, apply for any help you’re eligible for

If you’re one of the many people who has been handed a pay cut, furloughed, or even made redundant, then it’s worth looking into what support packages are available. Governments have responded to the crisis by offering help packages to those who have found themselves suddenly unable to work. These packages have been created to help mitigate the personal financial damage caused by coronavirus, so take advantage of them if you need to and are eligible.

5) Convert savings buckets into emergency funds

Do you have savings that you can rely on - for things like holidays, Christmas presents and home repair? When you’re in a crisis, these are nonessentials that you can live without. The money saved can be pooled into your emergency fund to help get you through the next few months.

6) Take it 1 day at a time

For the time being forget the long-term goals. Until you get back in control of your financial situation, make it a habit to check in with your budget and finances daily. Always know exactly how much money you have coming in, when your bills are due, and be firm with yourself on what you can and cannot spend each day. Until things improve, only spend when necessary

7) Find extra sources of income

To make it through a crisis you need to take care of the money you have. But once you’ve done this and you’ve already tapped into your savings account, where then can you turn? Next, it’s time to look for a way to earn more. Try to find temporary part-time work if you can, think about monetising a hobby you already do, or even sell some unwanted items. And remember this need only be a temporary necessity to get you back in control of your situation.

8) Avoid high costs

Borrowing money should always be a last resort. The allure of quick access to cash is nearly always offset by high interest rates and a new monthly payment. These extra payments can extend your financial hardship, and if you borrow too much you can fall into a downward spiral that’s almost impossible to recover from. If you have to borrow, consider making your family your first point of call as they will likely be more flexible with how you pay the money back. It cannot be overstressed that borrowing should be a last resort, but if you do borrow money make sure it’s the right loan for your situation and ensure you’ve worked out a timely repayment plan - and stick to it.

9) What to do if you’re worried about your pensions and investments

Don’t panic. This might be the hardest ask yet, given that stock markets have fallen sharply in recent months and they’ll likely be volatile for some time. Whilst the escalating pandemic may leave you feeling blindsided and helpless, it’s important to remember that this is not the first – or the last – market dip, and it can in fact be a good opportunity to invest while prices are low. Markets are elastic and it’s likely they’ll recover in time, but if you have pressing concerns you should speak to your financial adviser.

10) Plan for the next financial emergency

It won’t happen overnight, but once you’re out of the woods, take steps to minimise the impact of similar events in future. Make sure you’re still putting a little aside after each pay-day and start building an emergency fund. A good rule of thumb is to set aside enough to make ends meet for a few months. Remember this is a tip to bear in mind for the future. For now, just take things 1 day at a time, lean on those you trust, and don’t be afraid to seek help if you feel you need it.

*This article is intended for general information purposes only. You should consult your financial adviser before making any financial decisions.