COVID-19 has turned our world upside down, causing turmoil, panic, and uncertainty. It has put every country, household and individual under immense stress and anxiety, and has caused many to develop a feeling of helplessness.
It will erode economic development progress at the global and national levels, and will negatively affect our personal finances and wallets, as we stretch our personal budgets to the limit and tap into sparse savings, to enable us to stock up on food and medical supplies in preparation for the expected social isolation lockdown.
Yet, despite all the negatives and hardships that this pandemic will bring, it will also present opportunities to assess the really important things in life, how we spend, why it is important to save for a rainy day, and if we should cut back spending on non-essential and trivial material things that we can well do without, and resort to good old-fashioned family-time and bonding.
As the pandemic spreads, citizens everywhere are extremely worried about how they will survive, since everyday life requires money, and millions of the world’s population already live paycheck to paycheck. This, coupled with fears of job losses which will inevitably occur, is immensely stressful for our world’s population.
As of April 3, 2020, the International Labour Office estimates that approximately 25 million jobs can be lost, with a low estimate of 5.3 million globally. This compares with approximately 8.7 million job losses during the recession. These statistics are indeed troubling, but again provide an opportunity for us to reflect on why we should have savings to carry us through a crisis for at least a year—perhaps longer.
Strategizing your personal finances
Strategizing your personal finances in the face of a global crisis of this nature is a difficult task, since many individuals cannot count on job security. Nonetheless, it is important that we make a plan. According to world statistics, the average annual household expenditure in Barbados was US$9,751 (2011), Guyana US$4,759 (2011), Jamaica US$5,647 (2017), and Saint Lucia US$6,900 (2011). These statistics provide a good idea of what we would actually need in reserve to get us through a major crisis.
This pandemic will probably affect us for approximately three to six months—maybe longer. How quickly we will stabilize this pandemic, depends entirely on how socially responsible we all are individually and collectively, when our national government issues certain directives.
A good strategy is to sit down with your family and have a very honest discussion about money and how it will be spent. Brainstorm ideas with your family about how financial resources should be spent over the next six months. Get all family members to contribute to the discussion to garner buy-in, even the little ones. If someone brings up something trivial, remind everyone that there are specific budget sub-heads to work with, and that no non-essential expenditure will take place until the pandemic is over. Then develop a six-month budget using the matrix in Figure 1.
Note that if you have a deficiency, you will also need to think through a strategy to address the deficiency. Will you use your credit card to pay bills and purchase food? Can you borrow from a family member? Bear in mind that we naturally tend to gravitate towards our credit card as our safety net. However, if you do not pay off your entire card balance in full on the due date, you will have to pay substantial interest. This interest can range between 15 and 25 per cent on the unpaid balance. The average interest rate is generally around 22 per cent.
Be alert for Government announcements that can help with your budget planning (e.g., if a utility company gives a discount). Note, however, that this credit should not be reallocated to frivolous things; bear in mind that, for example, having the entire family at home for an extended period will incur more utilities. The utility company’s discount may just offset the increased usage cost you may incur.
Crises can tear families apart or create family bonding. During this stressful time, let us be kind to each other. Again, it might be important to have a family discussion on how to keep the peace, maintain harmony, share the home chores, and get some personal space. Create a family contract that details the ideas for keeping peace and the scheduling of chores and let every family member sign it to make it fun—but serious. This can then be used to remind family members about their promises if/when things start to get out of hand.
Survival in social isolation
Most of us will find that survival in social isolation is unbearable. However, we can survive if we put some strategies in place. Families can do many fun things together. With a pandemic of this nature, there is a real possibility that the internet may crash, since people all over the world will also be online. Have a family discussion to come up with ideas for different things to do each day. Here are some ideas:-
• Ensure that you schedule between two to four hours for lessons Monday to Friday for children in school.
• Ensure that the family gets some daily exercise. This is important for health and general well-being. Make it a family activity. It can even be a game outside.
• Have a nightly movie time-slot. Allow a different family member to choose the movie each evening and encourage the entire family to watch the movie. Choose movies that are suitable for the entire family.
• Create a movie from cell phone photos. Let family members compete with each other. Add fun captions to photos that are kind, whilst making the family crack up with laughter. Show it on your TV for maximum impact.
• Have a story evening where each family member has to write a 200-word story about the most memorable event in their life. Help the little ones to write their stories or allow them to just tell their story.
• Have a karaoke evening where each family member performs.
• Create your own circus. It will likely be hilarious.
• Have a games night. Play board games, cards, dominos, and paper and pencil games. Create a drawing that everyone must add to. You will crack up with laughter at the ridiculous drawings that will be generated.
• Have a cookie baking evening where every family member designs his/her own cookie. It can be the “ugly cookie” or the “best looking cookie” competition.
• Put family names in a bag. Pick a name and make an Easter/Christmas ornament for that family member. This ornament will be a symbolic historical memory of how you survived and bonded together as a family during COVID-19.
• Do a gardening project. Let each family member plant and nurture a vegetable. It teaches responsibility about why food security is so important and why we must each play our part in this important initiative.
Things to avoid
• Shopping online for personal things which are non essential at this time.
Renting on-line movies when finances are uncertain.
• Avoid credit card debt if possible. The interest is astronomical.
• Ordering in too much fast food, if you can prepare meals at home. Buying food is considerably more expensive than making it yourself.
• Do not remain logged into your internet banking since hacking will likely be on the increase.
• Irresponsible and inconsiderate social behaviour (e.g., going out, saying that you cannot get ill because you are young and healthy, forwarding social media messages that are not from a reliable source, playing pranks, cyber bullying).
Our role in this pandemic
Every individual has an important role to play in helping to control this pandemic. We need to be smart, responsible, and diligent. Our daily actions can save or endanger lives, so let us all make it our personal mandate to act in a socially responsible manner. The choices we make during this pandemic will affect our lives forever. This is a good time to reflect on your life, and the fact that you cannot give back life. During this difficult time, let us show humanity, kindness, love, and compassion. Keep safe, keep faith, and keep the peace.
Lessons post COVID-19
Many of us will likely encounter serious financial challenges over the next couple of months. Consequently, we will need to play the catch-up game over the next year to get back on stable financial grounds. However, we can again use this pandemic as an important learning experience to strategize and manage our income and expenditure in the future, so that if/when the next crisis occurs, we will be more prepared.
As we move forward with our lives post COVID-19, let us all commit to some personal budget rule. The recommended rule is 50/30/20. Spend 50 per cent of your after-tax pay on needs (the essential items outlined in the table), 30 per cent on wants (recreation, travel, personal material things, fun things), and 20 per cent on savings. If this rule is not realistic for your needs, adjust it to suit your unique circumstances.
Whatever you end up doing, commit to some budgeting rule, even if you are in the lowest income tax bracket. You will be surprised that once you make a firm commitment, that you will not miss the money after the first six months. Add it to your expenses so that it becomes a normal budget line item. Note that even a small amount such as $50 monthly will accumulate to $600 annually, $3,000 in five years, and $6,000 in ten years. It is also advisable to save in a credit union since you get higher interest at credit unions.
Let us use this experience to start to manage our money wisely. If no new crisis occurs, that is even better. Do something nice with some of the money every five or ten years. Take a vacation or buy something that you always wanted. However, remember to always keep some in reserve for a rainy day. Be safe and be well!
Nadini Persaud, Ph.D., CPA, CGA
Lecturer in Evaluation
Department of Management Studies
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