The impact of the national lockdown has been serious for many people and affected many businesses. Perhaps you’ve lost part or all of your income. Maybe you feel less secure in your job and anxious about your future. Maybe you’re supporting extended family. Whatever the impact has been for you, there are steps you can take to reduce financial stress and build a stronger future. As the economy begins to recover, you can set yourself up for success, here's how.
Start at the beginning: take stock and understand your current money situation. Ask yourself these 3 questions:
1. What is my current financial situation?
This one might seem obvious. But in reality, you may only have a rough idea of what’s going on with your money. You may know the headlines, but not the details. It may feel stressful or even boring – but to build a solid plan, you need all the facts. So, consider the following:
- Has your household income changed?
- Have your expenses increased (for example, are you now also supporting family)?
- What are your total monthly expenses?
- Does your income cover all your monthly expenses and commitments?
- Is there still significant risk to your income as a result of the current circumstances?
- Do you know the balance of any credit account or loans you have? (If not, find the details and make a list)
2. What is my runway?
Your ‘runway’ is the number of months you could use your savings to cover your expenses, without an income. Here’s how to work this out:
- Add up all of the savings you can access easily (for example, exclude savings in a retirement product, which you aren’t allowed to withdraw, but include money you've saved towards a holiday)
- Work out how much you need to cover all of your expenses and commitments each month
- Divide your total savings amount by your monthly expenses amount
For example: If you currently have R15 000 in savings, and your expenses are R10 000 a month, the calculation is: 15 000 ÷ 10 000 = 1.5 months
It's recommended that you try to save enough to cover your expenses for between 3 – 6 months. Depending on the work you do and how at risk you feel, you may want to try saving even more.
If you find that your runway is much less than this, don't worry, it's never too late to start saving. If you are still earning, focus on building your safety net as consistently as you’re able to. The simplest way to do this is to reduce your expenses in any way you can, and put this money into your emergency savings each month.
If your income has been affected, or you've lost income or are about to, this can be a stressful calculation to do. But once you know your runway number, you can start looking at what steps you can take to ease the situation. These steps could include negotiating repayment terms with your credit providers, for example.
3. What are my first priorities?
Having a clear view of your financial situation allows you to prioritise and plan your next steps.
If your income no longer covers all your expenses, you urgently need to reduce them. If you don’t feel comfortable with your runway number, you may want to prioritise increasing it over other short- or medium-term savings goals until you feel more comfortable.
You might even find that your situation isn’t as bad as you thought. The interest rate reductions, along with the changes to your habits under lockdown, could mean that your spending and expenses have decreased too. This may be an opportunity to increase your emergency savings and focus on repaying debt more quickly.
Once you have a clear picture of your financial situation, your runway and what these mean for you in terms of priorities, you can start planning practical steps to reboot your budget and build your financial security.