Surviving During Uncertain Times
How to Retool Your Budget for COVID-19
While there seems to be a light at the end of the COVID-19 tunnel, the financial consequences of the economic lockdown may linger for years in family households. Forced into home confinement, with many experiencing a cut in earnings or job loss, families are having to cope with an unprecedented health and financial crisis. At a minimum, families have been forced to examine their priorities and take stock of their personal finances as they navigate the crisis. For many, it has created the opportunity to completely retool their family budget, not just to get through the crisis, but also to come out even stronger on the other side.
For most families, the crisis has forced them to reexamine their daily life needs and change some habits, both of which could have a positive effect on their long-term finances. By extending these changes to a new spending and savings plan, families can benefit from a retooled budget.
Many families have been impacted on the spending side of their budget due to reduced hours, being furloughed, or laid off – or the fear that it could happen to them. When earnings are reduced, spending must be reduced. The first place to look for spending cuts is with variable expenses, such as dining out, leisure activities, new clothes, gym memberships, premium cable, and unlimited data plans.
When you live with these expense reductions long enough, they can become ingrained in your budget. So, when your income returns to its pre-COVID level, you can more effortlessly live below your means, which is the key to growing your savings.
Many families have been tapping into their savings to help cover expenses. That is precisely the purpose of an emergency fund. A general rule of thumb is to have six to twelve months of living expenses set aside in an emergency savings account, which should be more than adequate to meet a family’s needs during this crisis.
For families who do not have an adequate emergency fund, this crisis is a stark reminder as to why they should. There will be another crisis or unexpected event at some point, but we cannot know when which is the point of having an emergency fund. By reprioritizing your spending with the goal of living below your means, you should be able to find $200 to $500 a month to set aside in an emergency fund.
Being confined to their homes for several months has provided many families with the opportunity to look for ways to generate extra income. Thanks to advancements in technology and the gig economy, it has never been easier to start a side hustle, even when working full time. Through apps such as Upwork and TaskRabbit, anyone can apply their skills and expertise to generate additional income that can go towards paying down debt or saving for an emergency fund.
Spending money to make money
Hopefully, the lessons learned during this crisis include prioritizing spending with the goal of living below one’s means. But you can’t stop spending altogether. However, technology has paved the way for you to make money when you do have to spend money. With cashback apps such as Rakuten, Ibotta, and ShopKick, you can earn cash back or points towards gift cards on all your purchases. For example, you can receive as much as 3% to 5% back on your purchases with Rakuten. If your monthly expenses for groceries is $500, you can earn as much as $25 cashback.
No one could have anticipated this crisis, which is all the more reason why it’s essential to prepare as if the next one could be just around the corner. But it often takes a crisis for people to reexamine their priorities and take stock of their finances. By incorporating learned lessons and better habits into your budget, you can come out much of this crisis financially stronger.