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Cashflow Coronavirus

26th April, 2020Useful personal finance

putting coins into piggy bank

Help. What can I do?

The economic impacts of the Coronavirus are really hitting home right now. Many people have lost their jobs, have taken cuts in income, had contracts cancelled. And while the Federal Government has been quick to announce positive payments for at-risk businesses and individuals, it’s unlikely to be enough. Many people are feeling financially very uncertain and are asking the question: what can I do to manage financially? The smallest thing you can do that will have the biggest impact is to get smart about your spend.

 

Take stock of your current spending

The first step is to take stock of your current spending. The easiest way to do this is to download your bank account and credit card transactions for the last 90 days. Then enter the expenses into a budget tool – one that is easy to use is the Money Smart Budget Planner:

https://moneysmart.gov.au/budgeting/budget-planner.

 

Manage your essential expenses

These are challenging times, and so you may need to take a hard-line approach. Start with your essential expenses, the things that you must spend money on – like housing, food, medicine, basic clothing. Identify each item and the amounts you currently spend. Where can you save money? Start with the things where you might be able to easily cut costs. For example, many of the banks are offering customers under financial strain with relief on their mortgage repayments. Contact your bank and ask for a lower interest rate or to re-finance to a cheaper loan – as well as deferring interest on your loan. Landlords are needing to consider rent relief to tenants. Contact your landlord or real estate agent and have a conversation about what your options might look like. Negotiate with utility providers. And given you and your car are likely to be at home more, call your home and car insurers to see if they’ll give you a discount on your premium. For many people with children, school fees are in the ‘essential’ category. They value education and don’t want to unnecessarily pull their kids out of their current school. Some schools have said that they will provide fee relief to families who are under financial strain as a result of the Coronavirus. So, contact your children’s school and ask for a school fee “holiday” or help. The tax office is also prepared to assist – so remember to get in touch with them if you need to defer paying any big tax bills that are due. Call any major providers and ask for help in assisting you to get through what are tough times.

 

Review discretionary expenses: the 3Ds

The next step on your expenses is to review those that are discretionary. This is not necessarily about giving all of these things up – but to get clear on how much your spending and what you’re spending on. To take action, focus on the three Ds:

  • Don’t spend:
    • What items do you currently buy that you don’t really need? Most people are finding that with the COVID-19 restrictions, they are not spending on things like travel, going out to restaurants or entertainment, and petrol. Perhaps you have a streaming service and are not really using it. Or a newspaper or magazine subscription that you don’t really value. Or in bigger stakes, perhaps a second car that you could do without – saving you running costs and potentially giving you a cash buffer if you sell.
    • What can you have without actually having to pay a cent for it? For example instead of always buying books, you could borrow books to read – either from friends or your local library. And most libraries are now online, so you can keep self-isolating and borrow books.
  • Discount:
    • What items could you still buy – but pay less for them? For white goods, buy last year’s model. And of course, there’s sales. With the current economic pressures, you could see significant sales. However, remember the golden rule (which takes you back to the first D): no matter how attractive the discount, if you don’t need it and you buy it anyway, it was never on sale!
    • Can you dial back on brand? Try switching your grocery shopping to lower cost supermarkets and you could save 25% on your shopping bill – without losing on quality.
    • Can you buy second hand? Cars are an obvious opportunity to buy second hand – as we know that as soon as you drive a new car out of a dealership it loses about 20 percent of its value straight away.
  • Defer:
    • Can you delay purchasing some items? If you’re under cashflow constraints, this is a fabulous strategy – as you simply pushing an expense out in time and don’t have to give it up completely. I’m not talking about buy now, pay later schemes (as they have challenges of their own). But simply a decision to be patient and wait. For example, if you’re planning on renovating your home, move your target date out a year or two. Break down the elements of the renovation – if you painted now would that buy you time to re-do the bathroom in a couple of years?

 

Final words

Importantly, this is not about mindlessly cutting costs. If you need to keep a (now online) fitness membership for your physical and mental health, then work out how you can prioritise this in your cashflow. If a great take-away once a week keeps you sane, then do this. If buying a coffee takes you to a happy place, go for it. There’s no right answer, no ‘one size fits all’ solution. If your income is only slightly reduced, then you’ll have more leeway on what stays and what goes in your expenses and you may only need to trim your spending. If your cashflow is really constrained, then you’ll probably need more of a haircut. Without trivialising the seriousness of this, I have found it surprisingly satisfying to become highly conscious of consumption, to disrupt my habitual purchasing patterns and to feel far more in control of spending. I hope that you find a similar satisfaction in this experience.