budgeting during COVID-19 may be having you feel a lot of stress. If COVID-19 has affected you? You’re not alone. More than one million Canadians are finding themselves out of work as a result of the ongoing Coronavirus pandemic.
In this article, we’ll look at how budgeting can help you get through these challenging times. We’ll also look at the importance of budgeting in general and adjusting your budget for the virus.
Importance of Budgeting in General
The importance of a budget can’t be understated. If you and your family want financial security, a budget can help you achieve that and more. Still not convinced? Here are six important reasons why you want a budget.
A budget makes it a lot easier to categorize your expenses. By categorizing your expenses, you can keep a closer eye on where your money is going every month.
Balancing Your Budget
Balancing your budget means accounting for your spending during the month. When you overspend on groceries, the money has to come from somewhere. With a budget, this balancing act is much easier.
Managing Credit Card Debt
With a budget, you can divide a certain amount to go towards high-interest debt.
Create a category for short and long term goals like a family vacation and an early retirement.
Budgeting for Annual Events
A budget helps you save for one time annual events like the holidays and birthdays. You’ll no longer need to rely on “found money” like bonuses and tax refunds to pay for them.
Financial Planning for Life Events
A budget also helps you plan for life events like getting married, the birth of a child, and buying a new home.
Adjusting your budget for the Virus
If COVID-19 has affected you, it may mean cutting back on some expenses. Although that’s never fun, it’s something necessary. If you’re finding it painful, it helps to think of it as temporary.
Look at your income and Savings
Every budget has two sides: what you make and what you spend. If you’re going through difficult times, the status quo won’t do. You’ll need to make some changes.
The first thing to do amid the Coronavirus pandemic is figuring out what your net monthly income. This gives you a hint about how deep the budget cuts need to be.
If COVID-19 cuts your family’s income in half, you may need to reduce your family’s expenses by half or more.
After that, look at your savings account for any money you may be able to use in the short-term to get by. You’ll have an emergency fund with three to six months’ living expenses.
In case you don’t, don’t worry. Tally up the savings in your bank account and figure out how you can use the money to get by.
Budgeting During COVID-19 – Organizing Your Expenses
Reducing expenses can make getting through the current financial crisis a lot easier. Yet before you do that, you’ll first need to know where and how you spend money.
Start by making a list of everything you spend money on in a single month. Begin with your fixed expenses. These are essential expenses: paying rent/mortgage payments, utilities, food, and car insurance.
You could also include debt repayments on the list. Making your debt payments on time does matter for your credit score. If you’re carrying any credit card debt, student loans or car payments, don’t forget to include them here as well.
Once you have your first list, make a second list of variable household expenses. Variable expenses are discretionary or non-essential expenses. This includes costs such as clothing, entertainment, shopping, and restaurants.
If you have some extra time on your hands, you might also want to make a third list. This list can include sporadic expenses. These are expenses you don’t pay each month. For example, the water bill that you pay quarterly or your home insurance premiums that you pay on an annual basis. By including these expenses here, you’re less likely to be caught off guard by them.
The secret to budgeting success is to include every expense in its separate category.
Reducing and Cutting Unnecessary Expenses
To protect the financial health of your budget during a financial emergency, you’ll want to prioritize the expenses that matter most. For instance, paying your mortgage lender or landlord and utility companies should take priority over buying new clothing and furniture.
Some unnecessary expenses you might look into cutting include restaurants, entertainment, clothing, travel, subscriptions, and electronics.
Under normal circumstances, you might find it tough not to spend money on these expenses. However, if you’re under a lockdown order or you’re trying your best to follow social distancing, then cutting these expenses may not be that bad.
Another category of expenses you might consider cutting is any work that you outsource. For example, if you’re paying someone to clean your house or mow your lawn, you could always do those tasks yourself for the time being.
Review Essential Expenses when Budgeting During COVID-19
It doesn’t hurt to do a double-take of your essential spending. Start by looking at your most costly expenses. For most families, the most expensive costs include housing/rent, food, and transportation.
If you’re a homeowner with a mortgage, mortgage lenders are offering help. Lenders are offering homeowners the option of deferring their mortgage payments. It’s a good idea to look into that immediately if you expect to have trouble paying your mortgage.
Something else you might look into is refinancing your mortgage. With mortgage rates pushed down due to COVID-19, you may be able to reduce your cost of borrowing by refinancing your mortgage.
If you’re running into difficulty making your utility payments, reach out to your utility companies. By going to your utility company, your utility company may offer you a solution for getting through a tough time.
Need help budgeting during COVID-19? Contact us for a helping hand with your budget. We’ll help you remain financially healthy during these challenging times.