For the majority of the population this period feels like a steep mountain to climb. Here are a few tips to help you with your financial decision making. Making informed and solid financial decisions will certainly contribute towards conquering this economic downturn.
Don’t give in to panic or fear
These are very real emotions and while you should face them, don’t give in to fear or panic. Everyone is being impacted to some degree. Stay positive because there is always light at the end of the tunnel. You may not have made the best financial decisions in the past, but you can start right now. Make a decision then action it. Sometimes it requires a pandemic for people to take action. Learn from it. Improve your financial knowledge during the current situation to benefit in the future.
Discipline. Discipline. Discipline
Scrutinise your expenses for potential savings and if you ever needed motivation to be disciplined with spending, this lockdown is it. Opportunities to spend your money have reduced drastically, so you may as well get into the habit of saving. Identify the ‘cannot-live-without’ expenses and the ‘nice-to-have’ expenses. Look for opportunities to reduce the ‘cannot-live-without’ expenses and cut the ‘nice-to-have’ expenses completely or reduce these, as far as possible. You only want to pay the bare minimum now. If an expense can be deferred to a later stage when you have recovered, go for that option.
Get clued up about financial relief during and after the lockdown
If there is no other alternative and your bank or financial service provider permits it, you can look at opting for the payment holiday. Bear in mind that with a payment holiday you don’t have to pay instalments for a period of one to three or four months, but, the interest and fees are still charged during this period. This will result in having a larger outstanding balance at the end of the holiday period and therefore your instalments and interest portion thereof will also increase after the payment holiday. Do the calculations to understand the full impact and then make an informed decision.
Apply the golden rule
The golden rule when it comes to repaying debt quicker is to pay more than the minimum instalment required. Any money that you pay in addition to the minimum instalment will reduce your outstanding capital amount. That is exactly what you want to achieve – reducing the outstanding capital balance. By reducing the outstanding capital balance you will also reduce the interest you will be paying.
If your budget allows continue paying the higher instalment now that the interest rate cut has been announced as more money will be allocated to reduce your capital balance. Allocate any additional cash to repay debt. Use any excess money at the end of the month to repay debt.
Financially Future Fit
The people and businesses who were probably less stressed during this time were the ones who had an emergency fund in place. An emergency fund would be the best solution to give you peace of mind during such unforeseen circumstances. You have control over your emergency fund and you can make the decision whether to use it or not. Unlike with all the relief and other assistance options available, you don’t need to prove a loss of income, have to submit documentation and apply for the funds where somebody else has the discretion to determine whether you are a viable candidate for funding or not.
Related: Your saving grace: An emergency fund
Learn the lesson
Unforeseen circumstances are real. They can happen to all of us and can happen at the blink of an eye as we are experiencing right now. Take responsibility for your financial wellness, own it. Educate yourself about finances. Work towards improving your financial wellness on an ongoing basis. Financial wellness is as important as physical and emotional wellness to create ultimate wellbeing.
My top tips to conquer this economic downturn:
- Empower yourself with financial knowledge right now to make informed decisions.
- Make a conscious choice to avoid debt as far as possible and commit to repaying your debt as quickly as possible. Cash is king!
- Make provision for unforeseen expenses in your budget and during months that you don’t use it allocate the money to your emergency fund.
- Start the habit of saving monthly: Transfer the money out of your daily bank account to an investment account.
- Struggling economies and markets not performing well always convey opportunities too. Look for good opportunities that you can benefit from during this time. Some of the largest and most successful businesses worldwide were started during an economic downturn.
Related: Opportunities knock despite Covid-19
This article was written for and published in the Kickass Bosslady Magazine May issue.