The last few months have left us facing challenges we have never experienced before, due to COVID-19. And while I believe we will all come out of this stronger and more resilient than ever, it is important that we all make well-informed decisions around safeguarding our personal finances as well as our financial goals, both immediate and long term.
At the time of writing this, almost 1 million Australians had lost their jobs or have had their hours reduced, so if you are one of these people, I recommend that you start by reviewing your budget to cut down to the essentials only: accommodation, food, utilities and transport.
Next, contact your credit providers to tell them about any upcoming cashflow problems so that they can help you find a solution to stay on top of your financial responsibilities and protect your credit rating until life returns to normal (albeit an adapted normal).
And if you can afford to, still try to make lump sum debt repayments (even random ones) so that you are still working towards your goal of being debt-free. It will mean that whatever debt remains when you can return to work is much easier and faster to pay off (because it’s smaller) than if you had done nothing at all.
If you are still able to work (even if it is from home), there are a few things that may help you achieve your financial goals and dreams sooner than you realised and use this time and situation to your advantage.
With all the lockdowns, you may find that saving money is a little easier because of the removal of many typical lifestyle expenses and temptations. These include – but are not limited to – gym memberships, restaurants, bars, entertainment and general lifestyle costs.
Being proactive and quickly identifying these savings may be a silver lining for you right now, and in turn they might help you achieve your financial goals sooner. Let me show you how.
If you are in debt, with a goal of getting out of debt as quickly as possible, using this ‘pause’ in your normal living expenses can help you pay off your debts sooner. I recommend going through your budget, seeing what you are not spending money on right now and increasing your debt repayment by the equivalent amount. Track and monitor your debt reduction process continuously until you are debt-free. You could also consider using these extra saving windfalls to build up an emergency fund.
For example, if you have $5,000 credit card debt, and you are transferring $500 per month to pay this off, with your $120 per month gym membership on hold, you would increase your repayment plan to $620 per month. Redirect every newfound saving towards your debt. This will help you save time and interest. Otherwise you could redirect the $120 per month into a separate savings account to build your emergency fund for other expenses and unexpected bills.
Talking of savings, if you have a goal around saving for something in particular, whether it be emergency money or even a deposit for your first home, again, review your budget, identify what you are not spending money on right now and increase your regular savings plan. With the funds going into a separate savings account, ideally nicknamed in relation to your goal, you’ll feel motivated and inspired to keep building this account to achieve your goal. As with all of my advice, regularly review and track your progress so that you can feel good by witnessing your own growth and success.
If you find yourself in a position where you have no debt, have sufficient savings and would like to start investing for your long-term financial wellbeing, use this time now to start educating yourself around what your financial goals are and what investments you would like to own, including what the risks are, any tax benefits and implications, and so on.
This forced, almost ‘grounding’, of our lifestyles may just be the ideal time for us all to catch our breath and start planting some powerful seeds for our own money trees that could benefit us all well into the long-run. By proactively working towards a goal of long-term financial freedom and stability, we will ultimately create that shift that many of us needed to start to relieve financial stress in our lives and help contribute to our growth beyond the numbers.