5 Budgetary Changes to Make Right Now to Financially Prepare for the Next 6 Months
Our global economy has been rocked by this pandemic — here are steps to confidently prepare to ride out the coming months as our economies re-stabilize.
While I may not be a financial advisor by professional trade, I was both raised by an accountant, and am married to one.
Financial literacy and health have been important lessons I was taught very early on.
Through research and advice from trusted financial officials, I’ve compiled a list of the best ways to prepare ahead of time for what are going to be some less stable months since the COVID-19 outbreak.
Financial insecurity is one of the scariest realities to exist in — some, if not many of us, are already experiencing these pain points of declining income and an unstable financial future.
Here are some actions you can take immediately to put yourself in a better position financially, regain control of your money, and give yourself more confidence in riding out the next 6 months as our global economies recover:
#1. Before we dig in, if you don’t have a budget, it’s time to make one.
Open an Excel spreadsheet or Google Sheet, and start putting in the essentials first and foremost. Here’s a great free resource for budget sheet samples.
Start with the essentials, first and foremost. When I say essentials, I don’t mean the luxuries we’ve become accustomed to. I mean basic needs. These include:
- Housing
- Groceries & pet food
- Bills (water, heat, power)
- Health insurance
- Access to mental health services/support
- Wifi
- Transportation
Now, add all of the extras that realistically are included in your monthly expenses:
- Debt repayment
- Gym membership
- Haircuts
- Manicures
- Massages, osteopathy, acupuncture, etc.
- Charitable donations
- Car maintenance
- Retirement savings
- Online shopping
- Pay-per-view entertainment
- Entertainment subscriptions (Netflix, Hulu, Spotify, Amazon Prime, Disney+, Audible, etc.)
- Multiple phone bills (if you live with others)
- Eating out
- Special treats
- Monthly individual allowance (if you and your partner have this sort of arrangement)
- Gifts
- Etc.
Once this information is filled out, move on to step #2.
#2. Now, let’s start cutting.
You’ve got a compiled budget of your realistic life expenses under normal circumstances… and it’s time to start looking at it more critically.
Financial advisors and I are not telling you to be miserable and remove all the things you enjoy from your life — the point of this exercise is to shed light on what is truly a need in order to create room for a preparatory safety net — emergency savings.
For some, this savings may need to cover a couple of weeks of income while they wait for unemployment benefits to kick in after being laid off.
For people like me, who are self-employed, this savings needs to prepare for several months of totally lost income in case my clients abruptly suspended services. My budgetary cuts and savings planning has to be extremely aggressive right now — that’s just my current reality.
At the top of your budget, these are your basic needs and essentials. They stay at the very top.
Once we get to the additional monthly expenses, this is when we’re getting into luxury territory. Self-care is entirely important, especially when it comes to coping with a global pandemic, and psychologically tough situations.
But once we get down to this part of the list, we need to start making some changes that open up space for finances to be allotted into a savings account instead.
Look at your list of additionals, which are realistically luxuries, and choose 2–4 of them to keep, based on cost and your own personal circumstances (you’ve got to be brutally honest with yourself here). As for the others? Cut that monthly expense from your budget, and instead transfer that money to your savings for a safety net.
Of the above list, my husband and I have chosen to keep our respective phones, our Spotify subscription, Amazon Prime and charitable donations.
We’ve removed anything related to physical appearance (as we’re working remotely for the foreseeable future), luxury services (we’re now working out in our basement or going for runs), and eating-out (we would generally eat-out or order-in two or three times a month — no more).
Desperate times call for desperate measures — by cutting all additional expenses but our chosen ones, we’re able to transfer $480.15 to our emergency savings each month.
All of those little things really do add up — you’ll be surprised once you start cutting down.
#3. Pay only minimums on debt.
Depending on where you live, some debt repayment programs may be on pause entirely, or are pausing interest for a determined number of months to protect the national economy.
Canada, for example, announced yesterday that they will be pausing all payments on federal student loans effective immediately. This pause will last for 6 months and will be interest-free, to protect our economy as we recover during this pandemic.
For my husband and I, that’s $415 per month that we can pop into our emergency savings account.
Now is not the time to be trying to get ahead by paying extra on top of your minimum payment — now is the time to get by, be prepared and be cautious of further potential bumps down the road.
If debt payments have been temporarily frozen, or if you’re paying more than the minimum monthly payment, start transferring those funds to your emergency savings account to provide a possible safety net for future months.
Between the freeze on student loans, and only paying the minimum on our debt, we’ll be transferring a whopping $737.88 to our emergency savings each month.
#4. Take any extra money not included in your Cut-Down Budget upfront and put it directly into savings.
Don’t leave this money in your chequing account — put it directly into savings as soon as you get a paycheck. Only use it if absolutely necessary.
My mother called me earlier this week to tell me that financial advisors are telling their clients to enter a “survival mode” mentality.
As soon as she said this, my anxiety shot right up. I absolutely hate the sound of that, and frankly don’t want to hear something that scary right now.
But, I also recognize that denial isn’t going to help me here, and I need to be rational and realistic.
So, rather, I am intentionally entering, “Gaining confidence and security through high-intensity, responsible financial planning” mode.
There is confidence, security and ease of anxiety when we’re prepared and have a plan.
And frankly? We might not even need that backup plan! But if we do find ourselves needing it, we’re going to be awfully happy we had the foresight to plan ahead.
In total, we’ll be putting $1,218.03 into our Emergency Savings each month, starting now.
But what this new budget also means is that we now have a budget that allows us to survive on $1,200 less than usual. So, even if we have that exact loss in income in the next 6 months (likely due to fewer earnings in my business), we still don’t have to dip into our Emergency Savings.
#5: Have an Emergency Plan of action for when your worst-case scenario potentially happens.
This likely won’t be the case, if you’re preparing now.
But imagine it does — imagine that something outside of your control happens, like you have a sudden and substantial loss of income that your Emergency Fund alone can’t fully cover in the long-run.
In this case, it’s time to activate your Emergency Plan — this is your worst-case scenario. It could happen, so to be safe have one of these plans outlined.
In our household, our immediate actions for our Emergency Plan are cutting all of our select additional expenses, meaning our Netflix subscription, multiple cell phone bills and charitable donations.
Once you’ve removed every extra from your budget, the cutting gets even harder. The hope is, of course, that this situation will not take place. But for a bit of insight, Canadian financial experts are all saying the same thing:
“In a worst-case scenario situation, your overall goal should be to ultimately cover two things — housing, and groceries. Everything else you can temporarily live without in case of an emergency.
Debt repayments for example, even the minimums can wait. Wifi, power, and water can wait. This is what survival mode looks like. If you have extra money left over, then you start covering your bills based on necessity. But make housing and groceries your absolute top priority.”
In a worst-case scenario, my husband and I have to whittle down our basic & essential budget even further.
It’s scary when we don’t have enough money to cover all of our bills and expenses — but take some comfort in knowing that realistically, while it would still be difficult, we ultimately need housing and food to survive, and everything else is a first-world luxury.
Once we’re out of self-isolation as a community, we can get wifi and power at a local coffee shop. We have loved ones who would let us shower or take a bath every few days. Public transportation will be back up and running — a monthly bus pass is usually cheaper than gas.
Breathe — we’re going to get through this.
This article isn’t meant to cause even greater anxiety in an already panicked world.
I am a firm believer that having complete understanding, control and organization of our money (as much as is possible) fills us with confidence and comfort.
Knowledge is still power — that’s never changed.
It may seem overly cautious to be cutting your monthly budget so extremely, and putting as much as you can into an Emergency Savings fund.
But just think of it this way: it’s a win-win scenario. If you need to dip into this Emergency Savings in the next few months, you’ll be unbelievably grateful to have it.
And if you end up not needing it? Great! Once the economy and your financial situation are reliably balancing out again, you now have a big chunk of change to drop on your debt all at once, and can buy yourself something nice as a reward for working so hard to keep things afloat the last few months.
Being financially cautious and making a Plan A (and a Plan B) are the biggest favours, and mental comforts, you can provide yourself right now.
As you sit in self-isolation, rather than asking yourself anxiously “What do we do if…?”, instead make an actionable and intentional plan. You’ll be glad you did.
Stay safe and healthy, friends.
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