Given the state of affairs with the COVID-19 pandemic, a tremendous amount of uncertainty exists. Many have lost their jobs or have been furloughed. Some have lost their businesses or have seen a huge drop in revenues. Others are dealing with health expenses related the coronavirus itself. These issues combined with an erratic stock market is enough to send one’s stress level through the roof. But it’s important that reason and level heads prevail when managing your finances during COVID. And by following some smart money management tips, you can do just that.
First, it’s important to step back and take a few deep breathes. There’s no denying things are stressful. But letting your emotions get the better of you can lead you down the wrong path. Instead, a more logical approach should be pursued when managing your finances during COVID. Stress may not evaporate into thin air, but you’ll better position yourself for financial health and greater peace of mind. Understanding this, the following offers 10 smart money management tips you’ll want to consider.
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Assess Your Current Income
The first of these money management tips starts with reassessing your current income situation. Your income may or may not have changed. Or you may be dealing with some unknowns, like unemployment support. Either way, try to determine monthly income at least 3 months out the best you can. This is important in determining how manage expenses and your budget. And it could help you make some other important decisions as well.
Evaluate Your Monthly Expenses
If you’ve experienced a reduction in income, then managing your finances during COVID will certainly require reassessing your expenses. Be sure to take a full inventory of your bills and debts. This will help you determine where you might make some adjustments. Likewise, be sure to account for irregular bills that might not occur every month. You don’t want any surprises along the way.
Assess Your Short-Term Assets
Short term assets refer to the cash you have on-hand and your savings. Ideally, you should maintain an emergency fund that covers 3-6 months of your expenses. But even if you don’t, good money management tips include knowing what’s quickly accessible. If any income reductions are short-lived, this will let you know whether these funds can help you bridge the gap.
Prioritize High-Interest Debts
As a general rule, smart money management tips encourage you to pay off high-interest debt first. If you have a significant amount of this, a lower-rate loan may be a good option to reduce monthly payments. In any case, pay any extra amounts to these accounts to lower the balance as quick as possible. Over time, this will save you a good bit of money.
Identify Essential and Discretionary Spending
In managing your finances during COVID, it will be important to distinguish essential from discretionary spending. Essential expenses are those like housing costs, utilities, food and debt payments. In contrast, discretionary spending involves clothes, shopping, dining out, and recreational activities. During this time, it will be important to eliminate discretionary spending as much as possible. The “Nice-to-Haves” will likely need to wait.
Create a New Budget
Having completed money management tips 1-5, you’ll now be ready to create a new budget. If your situation is dynamic, then simply create a budget for the next 90 days. The goal is to take the information above to create a situation where your “ins” cover your “out.” In doing so, you will not only be in a better financial situation. But you will also feel more in control of your life.
Reach Out to Lenders
One of the money management tips many may not appreciate involves reaching out to lenders. If you are in a pinch due to recent events, some lenders have options for assistance. This can be an important step in better managing your finances during COVID when lenders are more agreeable. You can buy yourself some time and avoid a hit to your credit in the process.
Use Support Funds Wisely
Whether it’s government support checks from the CARES Act or unemployment support, these funds should be used wisely. For many, these funds are needed to pay for essential expenditures. But if not, these supports can be used for better managing your finances during COVID through investments or savings. And it’s also important to remember in your planning that some of these supports will have tax ramifications later.
Keep Funding Retirement Accounts
For some, it may be tempting to pull out your retirement funds early in managing your finances during COVID. But this is strongly discouraged. Not only can this have significant tax penalties, but it also undermines your long-term financial health. Retirement planning should continue and other long-term investments should be left alone. Despite current market volatility, these types of accounts will survive and thrive over the long haul.
Create an Emergency Fund
You may or may not be in a position to add to an emergency fund at the moment. But in planning your budget, it’s important to include a savings plan if you are able. By having enough to pay bills for up to 6 months, you can avoid a great deal of stress. Therefore, when it’s possible, be sure to include this as part of your financial planning.
A Few Other Important Money Management Tips
The above money management tips are well-established practices to get you through these difficult times. In addition, you might consider some less well-known strategies to improve your financial situation. For example, cash-back apps and credit cards can help save money if used wisely. The key is avoiding any ongoing balance that might accumulate interest charges. Likewise, postponing any new purchases that would add another monthly bill is also recommended if possible. The goal is to put yourself in the best position to come out of this with solid financial health. Managing your finances during COVID is likely to be challenging. But applying these money management tips to your unique situation should help you in achieving this goal.