If you look at people and businesses who are the worst affected financially by Covid-19 it is either people who have no income at all or those people and businesses who have substantial debt which they can no longer afford to repay. This article will help you make the immediate changes necessary to become more financially resilient so that you can weather these times and when tides turn you will prosper.
Step 1: Stage an Intervention
Reduce your expenses. Look at what your income is and try as best as possible not to spend more than you earn. This may involve drastically reducing your expenses. The best way to do this is to haul out your bank and credit card statement and to look at where your money is going. Perhaps you can cut back on luxury items, like streaming services, ordering in less, cooking more at home. It is important in this time to keep your valuable insurance cover in place but you could look at reducing/pausing any discretionary investment contributions (make sure you understand the immediate and long term cost of doing so and if there are any penalties).
Step 2: Secure additional Funding/Assistance (only if needed)
If you have cut your expenses back as far as possible but are still coming up short then you may need to consider one or more of the following options:
- Funding the shortfall in expenses from any savings/investments that you have.
- Applying for relief from government funding and unemployment schemes where available.
- Approaching the people/companies, that are still sending you bills, for payment relief options or temporary payment reductions/suspensions.
- Approaching your bank for temporary payment relief on your debt/loans, although this will most likely result in higher repayments later or an extended loan term.
- Borrowing from longer term debt/loans that you have access to e.g. a mortgage bond (they typically have the lowest interest rate compared to other debt). Borrow as a last resort and as little as possible from credit cards, overdraft facilities and personal loans as these will cost you the most over time.
If none of these options are possible or sustainable then you will need to make the tough choice to cut your expenses even more drastically!
Step 3: Consolidate and Rebuild
If you find that you are able to cut your expenses to such an extent that you have an amount left over in your bank account at the end of the month then try and settle any short term debt that you have. This is important if lockdowns extend or if there is a 2nd wave of Covid-19 infections which may place your future income further at risk.
Start by paying off any credit card/store card debt, overdraft or personal loans as these normally have the highest interest rates. You will save on the monthly interest charges creating even more disposable income. With any debt that you are unable to settle you may consider consolidating it to obtain a lower interest rate.
Once your short-term debt has been settled pay more into your mortgage bond (provided you can access it in an emergency) or create a low risk, accessible savings account to which you can contribute to build up a capital reserve for times of emergency.
Step 4: Try to create an additional source of Income
This may require a lot of effort, creativity and ingenuity but what is there to lose? You could look for suitable positions to apply for where you can work from home e.g. free lancing or consulting, you could provide a service online such as teaching a skill or become an online tutor or educator.
If you have more ideas to create additional sources of income please share them in the comments below.