If I told you the cash you have right now had to last you for three months, how would you feel?
Those with some cash reserves are probably thinking ‘Ok, I can do that.’
Others will be fretting – a little, or a lot.
Now, what if I said it had to last three years?
Most people would break out in a cold sweat at that thought.
Thing is, we don’t know how long a period of lost income will last when its cause – the COVID-19 pandemic – is so widespread.
We don’t know if we’re in for a recession, or a depression, or maybe we’ll wake up in three months time and the economy will have bounced back. I really, really, REALLY hope it’s the latter, but who knows?
We don’t have a crystal ball, and we don’t have a model for this.
The economic impact could be as little a few months or as long as a few years.
Because we don’t know, we’ve got to get defensive QUICKLY. We can’t fluff around on the edges like we would if we’re just trying to get to FI quicker.
You need to swoop on your spending like a team of M*A*S*H doctors and get that sucker under control.
It’s time for spending triage.
…but DON’T PANIC!
Balanced with this sense of urgency, we know financial stress lowers IQ.
Your decisions won’t be as good if you make them while you’re panicking.
You’ve got to do whatever you need to to get into calm enough state to think through your options and prioritise a response.
Write down the plan you make, then when the proverbial hits the rotating blade, you just enact the plan – you don’t try to think.
This will make the planning seem scary, because you’re imagining what it’ll be like in the worst case – say one to two years without decent income from work.
BUT having that plan and doing what you sensibly can NOW means you financial resources will last longer. If it all turns around quickly – great! You can start adding spending back in.
With all that in mind, if you’re worried about income, it’s time to treat money going out like you would an arterial bleed. Highest priority, and do it immediately:
1. Check your debts
Contact the institutions you have loans with – mortgages, credit cards, personal loans etc.
Find out what the process is to get relief – e.g. apply for hardship status, or whatever compassionate care options they’ve got.
If you’re being treated unfairly by them, you can start with Financial Counsellors for advice, or if it’s a legal debate about terms of your agreement, try your state’s Consumer Credit Legal Service. Both are free, both will have high demand. Persevere.
2. Check your other big, fixed spends
Can you reduce them?
Can you get hardship status with your power & gas for example?
Can your landlord drop your rent by 20%?
You have to ask. They won’t often volunteer such things. But it’s worth asking – nicely, and before it becomes so urgent that you’re panicking.
I’ve also got to be blunt here: if supporting adult children who are out-of-home is one of your big spends, it might be the moment to have the ‘time to stand on your own two feet’ chat.
3. Cut discretionary spending
Don’t be the dude or dudette looking at that new pair of shoes you didn’t need thinking ‘That would have covered at least some of my rent’ in six months’ time.
I know it feels bad to cancel the membership at your local gym. You want that provider to still be there when we’re allowed back to such places.
But if it’s a choice between paying the membership or buying food, you’ve got to pick buying food.
Let people with high confidence in their income keep those subscriptions up – hopefully it’ll be enough.
4. Stop buying groceries you won’t need or use
Panic hoarding is instinctive but it’s wasting money.
That’s money you might need elsewhere.
My thoughts on that here.
5. If desperate: consider superannuation withdrawal
The government is making it easier to access your superannuation under financial hardship.
I get that pulling $10k out of super when you’re 25 is cheating yourself of potentially hundreds of thousands when you retire.
But again, if it’s a case of affording basic food and rent, you’ve got to choose that over the long term view.
Just make sure you treat that money like gold – it’s precious, and it’s not to be wasted.
That’s the arterial bleed addressed.
Now, you need to replace some of that monetary blood in your system.
This is the time to get whatever help you’re eligible for. Don’t go queuing up around the block for Centrelink, but do persist online with applying for welfare. This is why we pay taxes 🙂
For a one-stop-shop, this page from Money Smart is awesome, and they seem to be keeping it up to date with the rapid changes we’re seeing.
Hope that helps!