Managing Your Finances During COVID-19
How do we best manage our finances during this COVID-19 pandemic?
We thought of sharing some smart thing you should do to keep your finances healthy even in the midst of the developing COVID-19 situation. Let’s begin. This is a great time to sit down and assess your real numbers. And by real numbers I mean your actual net worth. How much asset do you have? How much do you owe? And what’s the difference between them?
Your net worth is one great way you can measure if you are financially healthy. It is essentially the grand total of your assets minus your liabilities.
Calculating your net worth is pretty simple and with the extra time you have in between your work-from-home situation, you can finish doing this activity in under 20-30 minutes.
Step 1. Make a list of all your assets. This can be your cash at hand, money in your savings account, your investments, value of your possessions such as a house, car, etc. Beside each item, write down the estimated market value.
Step 2. Make a list of all your liabilities. This can be money you owe from the bank, from another person, from house mortgage, etc. Same as Step 1, do write down the estimated market value for each.
Step 3. Lastly, calculate your net worth by simply subtracting the total liabilities from the total assets.
The result of this exercise can be any of the following:
a. You have more assets than liabilities.
This is a good indication that you are on the right track! With this you actually deserve a pat in the back! Congratulations on keeping your finances healthy. Continue in your journey towards meeting your financial goals and don’t forget to make your money grow by investing as well. Investing is one way you can make your money work harder for your future.
b. You have more liabilities than assets.
Should your result be negative, don’t fret. It’s not too late to turn your finances around. Be accountable on the things you owe and start paying each according to what you can afford. You can also take a look at your current subscriptions and omit anything that is unnecessary to save money. Focus on keeping your net worth positive!
Start A Budget
If you don’t have a budget, now is the time to create one. People procrastinate when it comes to budgeting because it is too time-consuming to do.
But, a budget is more than just a simple written document of your money allocation.
A budget acts like your own compass in achieving financial freedom. It is an estimate of your income and expenses over a set period of time. Normally done on a monthly basis, budgets work to:
- Allocate your salary/income/money wisely
- Know how much is coming in and going out in your cash flow
- Identify the areas where you can spend less to save more
Now that the COVID-19 situation is apparent and still developing, it’s best to take a look at how you budget your money and keep it as effective as possible.
Take a look at your recurring expenses and see where you can cut down. Given the numerous extensions announced by not just utility companies but also banks, it’s only fitting that you adjust your budget accordingly.
Have a reminder of which bill you need to pay next. Ensure that the extension will not cost you more instead.
For us, still stick to the usual payment schedule if your money permits and you have enough in your savings account. However, if money is tight you can take advantage of the extensions instead.
Bulk up on your emergency fund
Emergency Fund is the money you set aside for emergency situations. These emergency situations are but not limited to the follow:
- Job loss
- Accident or medical emergency in the family
- Natural disaster
Your emergency fund is your first line of defense in case something goes out of hand. Think about it, when an unexpected event happens, how will you pay for it?
An emergency fund helps you avoid taking from your main salary and ruining your budget, or getting into the debt trap.
With the ongoing enhanced community quarantine due to COVID-19, a lot are forced to work from home. This is a great opportunity to bulk up your emergency fund.
Use any amount you will save from transportation, lunch allowance, dine-out with friends or alone, etc. and put them in your emergency fund. If you have yet to start an emergency fund, start one!
As hard as it seems, I highly encourage you to stay invested. I do get how scary the current situation can be but now is not the time to stop invested.
Focus on the long term. If you are in the stock market for the long run, stick to your plan. Here are the few things that will help you as an investor during this trying times:
- Stop checking the stock market every single day.
- Remind yourself of your financial goals.
- Remember that the negative you see is just paper loss unless you withdraw them.
- Think of this as a bazaar where every stock is on sale!!!
- Read stories on how the market behaves for the past years and believe that corrections, such as what is happening now, are normal. On the average, the market will always go up.
Follow your usual investment schedule or add more if you can. For many, even for me, this is my first market crash experience. It’s really depressing to be honest so some of us just stopped looking completely.
But never stop investing as much as you could.
The COVID-19 pandemic has greatly affected the market and our life. And we will never know when this will end. What we know is this, too, shall pass.
So for now control what you can control. Your emotions, your actions, your decisions, and your emotions. Just stay calm.
It may take many months or years, but the market will recover. Remember, time in the market is better than timing the market.