Chances are, nothing prepared you for the COVID-19 crisis. No one was prepared. You were on track with your financial goals. Reducing debt and saving for emergencies and retirement was a primary goal. How do you adjust your budget during a crisis, especially one that has no end in sight?
Crises come and they go. Currently, its COVID-19. But other events such as job loss or long-term illness can disrupt the best financial planning. The only way to successfully adjust your budget during a crisis is to stay calm. It is impossible to think strategically when you are stressed.
Recalculate Your Income
Have you been furloughed or are working only part-time? Are you receiving unemployment insurance? Adjust your budget to reflect the new reality of your income.
- How Much Cash Do You Have?
- What is the balance in your checking account? Emergency savings and regular savings account?
Prioritize Your Expenses
Some of your expenses may have gone down, especially if you have been furloughed or are working from home.
When you adjust your budget during a crisis, you need to focus on essential expenses only. This is an excellent time to evaluate how much of your money is going to necessities versus wants.
Essential expenses would include:
- Rent or mortgage
What is Your New Income/Expense ratio?
Do you have enough income and savings to cover your necessary expenses? If yes, for how long? If not, then you need to reduce expenses or increase your income.
Adjust Your Fixed Expenses
If you cannot pay your rent or utilities, for example, reach out to your landlord and utility companies. Explain your situation. Ask for a reduced payment plan.
Do everything you can to keep up with your credit card payments. Falling behind or missing payments will result in higher interest rates and late fees. And your credit score will suffer.
Pause any automatic payments you set up if you need to temporarily reduce the amounts being transferred.
Increase Your Income
If you have been furloughed or your hours have been reduced, your income will not cover your expenses. Your emergency fund will not last forever. Take the time now to look for ways to bring in additional income.
The good news is that the availability of work-from-home jobs has increased exponentially. COVID-19 has moved large segments of our usual activities online. Thousands of new jobs have been created as a result.
However, regardless of what financial crisis you are facing, joining the gig economy has always been an excellent strategic move. Increasing your income will help you weather the storm and give you peace of mind.
Readjust Some of Your Financial Goals
The financial goals you set at the beginning of the year were right on target for the circumstances. In a crisis, some of them will have to be delayed. For instance, perhaps you had a goal to pay off one of your loan accounts. Keep up with the minimum payments but getting rid of that debt will need to wait until the crisis is over.
Shift the extra money that you have been putting toward debt reduction to your emergency and other savings accounts.
Assuming your income has not changed, it is still a good idea to adjust your budget during a crisis.
Look for Low-Cost and Free Activities
Since you don’t know how long a crisis will last, keep as much cash on hand as possible. Look for free performances, classes, tours, and other outings. Your library is a great resource for free and low-cost entertainment. Do fun stuff at home with your family and friends, like games and movie nights.
Stay calm and take each day as it comes. Focus on the essentials of how you can adjust your budget during the crisis. And remember, it will come to an end.