We don’t know how long the COVID-19 pandemic will last but we do know that the economic impact of the pandemic and the national lockdowns instituted by governments around the world will be felt for many years to come.
Many South Africans have already seen their livelihoods change, with many people losing their income entirely and others earning a reduced income. This has serious implications for your personal finances.
It is now more important than ever to plan how you use your income and that means drawing up a budget. Drawing up a budget normally means that you can plan so you have enough money to cover your basic needs and that you are putting some money away for emergencies and more long-term goals.
But within the context of the COVID-19 pandemic you may need to relook your budgets and the way you are spending your money as your income and expenses may have changed dramatically. During the lockdown, you may have saved money on transport, but perhaps other expenses have increased and your income has decreased.
In the midst of the panic, you need to think clearly about what can be done with any extra money you saved on some expenses and redirect it to expenses that you have spent more on than usual.
Lockdown may have given you a chance to pause and consider what you really need. You can review your monthly budget and further reconsider your needs and wants. What you thought was a need, may only be a want now. For example, during lockdown you may have found ways to exercise at home, and then you no longer NEED a gym contract. Maybe you thought you needed new socks and during lockdown, you learned how to repair them.
Use this time to reflect carefully on your financial needs and wants and make changes to your monthly budget. To read more about how to assess your needs and wants click here.
Now is also the time to consider paying off your short-term debt, if you can. By reducing your debt you may have more money to protect you should the economic crisis stretch on for a long period.
You may be tempted to stop contributing to your retirement savings, although this may seem like a sensible idea in the short-term it will in fact be damaging to your future wealth, as long-term investments like these benefit from consistent contributions made over many years. Rather look at other ways to save money in the short-term by reducing your spending on your wants.
Emergencies come in all shapes and sizes, from a burst geyser or a broken leg, to a global pandemic. Your livelihood may now be at stake and that is why it is more important than ever to closely inspect your budgets and put plans in place to weather this financial storm. To read more about the process of drawing up a budget click here.