For many people, 2020 seems set to be a year of attrition. With both a pandemic and recession ravaging the globe, there seems to be little light on the financial horizon.
But before you throw in the towel, rest assured that there are still things to be done. In fact, there are a lot of steps you can take to ensure your financial survival this year.
Below, we’ll go over 5 of the most useful and most commonly applicable of those steps. Use them to keep your head afloat in the COVID-19 economy.
#1 Pay Off High-Interest Debts
It’s easy to see why this is advisable. Missing a single payment on a high-interest debt can set you back quite a bit, which means you end up adding to your debt instead of reducing it.
Now, the term “high-interest debt” may include a lot of things… but the most common example is credit card debt. Credit card debts typically have brutal rates, even for those with strong credit scores.
The best thing to do here is to pay off your debts in order of descending interest rates. So, if you’re paying off multiple credit cards, make extra payments on the highest-rate card first.
Once the highest-rate card is entirely paid off, you can move on to doing extra payments on the card with the next-highest rate. Keep doing this until you finish paying off all of your cards.
In this way, you’ll be able to steadily chip away at your debt. This can help you keep your finances sufficiently stable to deal with the worst of the recession.
#2 Create an Emergency Fund
If you haven’t done it yet, this is the perfect time to start putting together an emergency fund. This is basically a savings account that has enough to cover at least 3 to 6 months’ of expenses.
If you can put together a fund that can cover more than 6 months, of course, that’s better. In fact, if you’re in a decent position to save, aim to get enough for 9 to 12 months’ worth of expenses.
This is because you never know when the next economic shock will come in times like these. With all the uncertainty caused by the pandemic, many jobs are looking less and less secure too.
An emergency fund can give you a lifeline if something negatively affects your income. It can tide you over until you can work out a solution to the problem.
#3 Drop the Non-Essentials
Smart spending is the name of the game right now. If you’re going to spend, try to spend only on what you need… which means dropping as many of the luxury or non-essential expenditures as possible.
It’s actually a little astonishing to see how many non-essential items most of us spend on regularly. These include never-used gym memberships to entertainment gadgets.
A good way to find these discretionary drains on your purse would be to make a list of your expenses. Sort list items into “essential” and “non-essential” categories afterwards.
Drop as many of the items that aren’t necessary as possible - they’re nice-to-haves, not need-to-haves, so you can live without them right now. This will let you save your cash for more important things.
#4 Diversify Your Income
This won’t be possible for everyone, but it’s a good idea if you can manage it. It reduces some of the risks you’ll face if your current income takes a hit or vanishes entirely.
The idea is to make sure money’s coming in from more than one source in your household. This may mean anything from having 2 wage earners in entirely different industries to having one person work 2 different jobs.
If you’re opting for the latter, remember that you don’t need both jobs to be full-time. You can get project-based work or even start freelancing.
For instance, you could do part-time work translating documents from one language to another if you’re bilingual. If you’re a digital artist, you could even do commissions.
Your second job may not pay as much as your primary one, in most cases. Even so, it’s still a second income stream that you’ll be glad for if your main job is negatively impacted by COVID-19.
#5 Create a Budget and Stick to It
Finally, make a budget or spending plan. It’s something most of us have been putting off for ages - but in times like these, it’s more important than ever.
Making a budget for yourself or your household is one of the best ways to keep your finances from falling apart in times of crisis. It also ties into several of the other tips we gave you here.
For instance, if you have a budget, you can better plan how much of your income to put into paying off your credit card bills per month. You can structure payments without running short of cash for necessities.
So, your budget will help you organise everything to do with your finances. Whether it’s spending, paying off debts, or saving, it can help you get a handle on your situation.
Bonus Tip - Get Financially Literate
All of the above tips are things you’ve likely done already if you’re financially literate. Unfortunately, a lot of people nowadays aren’t given a chance to learn financial literacy.
There’s no time like the present to fix that, though. You have a lot of options now for improving your financial literacy, from doing self-study on it to consulting with an expert.
At Financial Fortress, we’ll connect you with advisors who can help you take stock of your current wealth and assets, and also plan next steps with you to improve your financial standing.
By teaching you proper wealth management and financial planning, the advisors will give you the most important tools for survival in crises like the ones we’re facing today.
Take your first step to financial independence in a proven and practical way. Speak with us now.
Written in collaboration with our financial advisory partners at Virtus Associates.