Undoubtedly, the COVID-19 pandemic is bringing tough times for many. However, as with any challenge, a crisis can bring opportunities for growth and development. In this post I will highlight some key considerations for personal finance.
Firstly, the current situation provides an opportunity for renewed focus on the importance of liquidity. We are seeing small businesses stretched beyond breaking point when they have insufficient cash flow to cover regular outgoings. The same is true for household finances which might buckle if there is a drop in income but still substantial outgoings.
Fortunately, many employed people are still earning their regular salary and others, if they are covered by the Government Scheme, are on 80% wages. Many others though have been laid off and many self-employed are without inflows of money – at least until some form of Government assistance materialises. For these people (numbered in millions) having sufficient liquidity is a matter of the upmost importance.
No matter what your current employment situation is, use this time to recognise the importance of household liquidity and to take action to improve it in the future.
If you are stretched at the moment, make a commitment to build an easy access savings pot from future income flows. My recommendation is to have enough money for three to six months of regular expenditure, ring fence this money and keep it for future challenges.
The second positive is the opportunity to assess and potentially re-set spending. In our Webinar Programme I teach participants the value of taking time to ask themselves “what have I been doing with my money and have my purchases really been worth it?” It is important to have enjoyable spending such as eating out, cinema trips, home delivery, etc., but it is likely you also spend on what can be described as “non-essentials”. Now is an ideal time to start the process of tracking your expenditure patterns. You could also set yourself goals, such as “decrease spending by 10%” or “identify categories of spending I can cut out”. Commit to track your spending regularly each month. Use monthly surpluses to build your contingency savings pot.
These two actions: tracking spending and building liquidity will enable you to emerge from tough times with stronger finances and more positive money habits.