In December 2019 a lot of people were probably preparing their goals for 2020, be it travel more, spend more time with family or save more. The events that started to unfold in the beginning of 2020 at first seemed unreal and as the dust settled, one thing was certain life was not going to return to normal any time soon. The economic impact of the lockdown due to COVID-19 has now started to directly impact most people. In this blog, I will be writing about ways to prepare your finances for an uncertain future.
Prepare a monthly Budget
The first process is to know how much you are receiving and how much you are spending. Preparing your budget is an easy way to access how you intend to spend your money. You can start by listing all the incomes and outgoings from the previous month then adjust for the coming months. Look for a way that works for you, spreadsheet, pen and paper or applications. The main objective is to have a plan of how you intend to run your finances.
Download our free templates to get you started from this link – Free Templates
We recommend splitting your expenses into three categories, fixed essential expenses, variable essential expenses and non-essential expenses. Fixed Essential expenses are expenses that have to be paid and do not fluctuate with usage. This includes, rent and mortgage payments, mobile phone contract payments, car payments etc. Variable Essential Expenses are expenses that fluctuate with usage and have to be paid. These include, car fuel, food, pay and you go mobile etc. Non-Essential expenses are expenses that you can live without. These are more like luxuries. Examples include, entertainment, shopping etc.
The next step is to reduce as much of your costs as possible. Splitting the expenses as shown above will help you with the processes. Start by reviewing the non-essential expenses. Some of the things listed can automatically be removed due to lifestyle changes i.e. entertainment which includes visiting public places or shopping. Next, review the variable essential expenses. With this section you may not be able to completely remove items but you can control how much you spend for example, you can reduce how much you spend on food by changing the shops you buy your food from or reduce how much you spend on fuel by travelling less. Fixed essential expenses are harder to reduce because they tend to be contractual agreements. Make a note of when the contracts are due to end and make sure you get the best deal available when you renew. The money saved should be sent to a savings account that is accessible.
Prepare an annual Cashflow forecast
Once you have prepared your monthly budget, use this to prepare your expected cashflows for the next 12 months. Insure that you adjust the amounts accordingly and include any one-off incomes and payments that you are expecting to incur. If you expect your income to be reduced or increased, include this so that you can see how much the shortfall will be.
How to deal with income shortfalls
Once you have completed the annual cashflows and see that there are months where you won’t have enough income to cover your expenses, check to make sure your savings are enough to cover the expenses. If not, ensure that you are aware of the financial assistance available to you. It’s also important to know how long it will take to apply for the financial assistance and factor this into your plans.
If you are not able to pay for any of your essential expenses, it is important to approach the service providers and see if they have any payment flexibility or payment holidays. Simply stopping payments will affect your credit rating and you may incur late payment fees. If your service providers offer you any payment flexibility for example mortgage holidays, ensure you understand how the money will eventually be paid back, any additional charges you will incur and any implications this will have on your credit rating.