How to Manage Your Finances and Thrive During A Crisis
We are facing some of the biggest challenges we've faced for quite some time during the current crisis.
Many people are worried about their health situations, but parallel to worrying about health, many people are silently worrying about their financial lives.
Of course tied to our financial lives are our relationships.
Health, wealth and relationships are all interlinked.
Many face the triple threat of having to spend money now to stockpile, but at the same time lacking in savings and at the same time worrying about their jobs or businesses.
So many people are facing a huge constraint from all sides.
Today I'm going to share with you a 7-step process for how you can manage your finances during a time of pandemics, stock market crashes or just during recessions.
I want to share with you how we're looking at our finances in this time period at a practical level.
It’s my hope that these tips can help to give you some peace of mind and a bit of structure in your household so you can start to take charge of your finances 😊.
You’ll find this useful If you're self-employed (~4.8 million people in the UK) or if you’re employed but have limited savings.
Let's dive in now and start to look at these various steps that I think you should put in place in order to get your finances in shape, survive and thrive in this challenging period.
7 Steps To Managing Your Finances During A Financial Crisis
Let's dive in now and start to look at these various steps that I think you should put in place in order to get your finances in shape, survive and thrive in this challenging period.
Step 1: Appoint a Home CFO
First thing I'd say is to appoint a Home CFO.
I work day to day as a CFO (Chief Financial Officer) as one of the hats I wear ordinarily.
For your household, this is somebody who will take on the responsibility for driving the family's finances in this challenging time.
During times of fear most people panic and couples struggle to get to grips with how to manage their finances.
Your Home CFO could be you or your partner. It’s that person’s job to implement everything that I’m sharing here today.
It is also their job to remind everybody else in your household that you have certain goals ahead.
The challenges you're facing now are a part of the journey towards helping you achieve your future goals.
Deciding who that person is starts by having a simple conversation about it.
It should ideally be someone who is able to eject themselves from the emotional concerns about the family finances.
That person will have to give strength to everybody else if they're worried about money and things like that ✊🏽.
Related post: How To Become Your Home CFO
Step 2: Understand Where You Are Financially
Once you've appointed your home CFO, the next step is to understand where you are.
In times of crises and panic, people forget to assess exactly where they are.
The key thing before you even start to do anything else is to assess exactly where you are financially.
By that I mean your current financial position.
The way you do that is to grab an A4 sheet of paper and write down a list of all your assets.
This could be your savings, investments, property, whatever you've got.
Write them on one side of an A4 sheet, and on the right hand side, write down all your liabilities.
I.e. people you owe money to – credit cards, mortgage, student loans, etc.
The beauty of the one sheet is that on a single sheet of paper you can see what your financial life looks like.
Through that, you can then start to connect dots and say, well actually I could use these assets to potentially offset these liabilities if I have to.
The difference between the total assets and the total liabilities is your current financial position or your Net Worth.
The other key thing from doing this exercise is that it keeps you laser focused on a very important aspect of your asset column, which is your cash.
Cashflow will become the most important thing you need to keep complete handle on during this difficult time.
The key thing I'd like you to establish at this stage is to figure out how much cash you have at the moment and how many months it would last if you carried on at your current lifestyle.
What you ultimately want to do is to then start to execute the next steps of this plan such that you can start to boost that cash pot you've got and build up a bit of a runway.
i.e. a bit of a lifeline for you and your family such that you are protected in the event of things getting a lot worse than they might be at the moment.
The other thing you're also establishing at this stage is assessing things such as what bits of insurance do you have in your life at the moment?
Do you have health insurance? Critical illness insurance?
Write these down on the other side of the A4 sheet.
Related post: How to Calculate and Grow Your Net Worth
Step 3: Create a Crisis Budget
A typical budget analyses how you're going to distribute the income you generate regularly across the different expenses in your life.
Those expenses cover your essential expenses and your lifestyle expenses usually.
A crisis budget on the other hand assumes certain scenarios and assesses things such as:
What if you do not receive an income for the next three months? Or six months?
If that happens, how will you survive?
Essentially, that's what that budget's about.
It allows you to look at the key essential and non-essential expenses in your life in order to make a call around those non essential expenses in your life.
At this stage, you want to be having a candid conversation with your partner if you've got one in order to decide what is really an essential expense in your life.
The more realistic your assessment of essential expenses in your life, the more likely you'll be able to make cost reductions on the non-essential elements of expenses.
Other resources: The Budget For Life
Step 4: Decide On What Expenses Need To Go
Here you are identifying what exactly expenses now need to go in order for you to create an additional buffer in your finances.
That bit of a buffer then flows into the bit of cash that you might have to act as a reserve for you and your family over the next coming months.
If you've got expenses in there that are helping you achieve your medium term to longer term goals, it's very important to make sure that those remain.
What you don't want to do during the period of crisis is to completely fall off the cliff when it comes to thinking about those longer term goals.
This usually comes at a bigger cost as those who don’t keep up the momentum of achieving their goals might never actually stay motivated to achieve them.
What we hope is that the current challenges that you might be facing during a time of a pandemic, stock market crash or a recession is something that will not last for a very long time.
So you want to make sure that those expenses that are helping you achieve those medium term to long term goals are protected and seen as investments.
Provided you've got a complete case for why they're helping you achieve your future goals.
Step 5: Negotiate Terms Where Possible
This is the time to negotiate with your creditors. So if you've got a mortgage, utility bills, other loans, etc, you want to start to give them a phone call.
Call your bank and negotiate a payment holiday on your mortgage and other loans, for example.
You want to be seen to be having the important conversations as early as possible and having them on record.
Payment holidays simply mean that your debts are deferred for a few months but you still ultimately have to pay your debts back.
The effect of doing this is that it helps you further reduce your outgoings whilst building up your cash buffer for the months ahead.
Step 6: Simplify Your Life By Selling Things to Raise Cash
In this step, you start to look around your life, your home, etc and consider what you can sell in order to raise some cash.
This has the double Impact of helping you to declutter and simplify your life but it also helps you to the raise some extra cash.
this could be anything from a second car that you have always considered selling to even some jewellery that you might have around the house and not wear as often.
There are always people seeking bargains during a time of financial crisis.
So you might have to sell things at a bit of a discount but the key is to raise the cash that's necessary to support you and your family.
Doing this exercise alone could potentially raise you 1 to 2 months worth of expenses in cash.
Related resource: How To Simplify Your Life
Step 7: Audit and Reallocate Your Time
So far we've been auditing your money and looking at where it’s going and where it's coming from.
But what's very key to managing your finances is also to manage your time.
At stage 7 you want to consider reallocating some of your time from certain activities that may not be generating value in your life towards other activities that might help you to generate more income.
So you might want to explore work from home ideas to generate a few hundred to thousand pounds or more per month.
Note that such ideas take some time to start to generate an income so you might not see a return straight away from pursuing a side hustle.
However, if you focus on it and commit your time to it consistently over time, you potentially will start to see some results over a few months.
We've done quite a lot of videos on side hustles and work from home ideas. See a couple below:
Feel free to check out more Side Hustle Ideas here.
To Conclude,
During these challenging times, it's very important to keep your morale as high as possible.
The best way to do that is to encourage a culture in your home of ongoing communication and conversation.
Nothing beats just talking about your challenges and the various things you're working towards solving in your life.
Simply talk about them.
If you've got money problems, just have a dialogue and talk about them and the beginnings of finding a solution to your problems usually begins by having a conversation.
Don't be afraid to actually have a chat about the challenges you're having even with people outside of your home.
You'd be surprised, lots of people probably face the same challenges as you and would appreciate the perspective.
Feel free to also get in touch with me via email.
I’m usually on the move but can have a 5-minute conversation here and there if need be.
Do this especially If you are somebody who is struggling at this very time and not quite sure how to deal with the challenges of managing your finances in these times.
Please comment below if you're someone who's currently being challenged at the moment financially due to the current state of the economy.
I’d also welcome comments if you've been affected negatively in your job, relationships and you're feeling challenged in your mental health.
Let me know in the comments and I'd be more than happy to jump in and offer some encouragement and ways you can move forward.
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How is the current economic crisis affecting your life financially, emotionally and mentally?
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.
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