There is no doubt that COVID-19 is a health emergency that is taking the world by surprise. However, this health emergency has also morphed into an economic crisis. The ongoing lockdown has left many with reduced or no income. The unexpected reduction in income has caught many unaware.
You need to focus on financial planning now more than ever. Here are a few tips for planning your finances to ensure that you have a better and burden-free future after the COVID-19 pandemic.
Re-Organise Your Budget
How well do you know your spending pattern? Your spending in the pre-COVID times would be significantly different from your current spending. The first step in your financial planning is to take stock of your expenditure.
The idea is to understand your essential and non-essential spending. Essentials will include the cost of groceries, medicines, transportation, utilities and occupation-related expenditure.
The amount that you would spend on dining out, going to movies or plays and on shopping come under the non-essentials category. You won’t be using the amount that comes under the non-essentials right now.
If you have suffered a loss or a reduction in income, then this amount can meet the shortfall. Even if you are currently employed with full pay, save this excess amount to ensure that you have a more secure future.
Under the current circumstances, the future is uncertain. With many financial experts predicting a global recession, you need to hang on to your savings now more than ever.
Use Credit Cards Judiciously
When you are short on cash, you can use credit cards to meet your expenses. There’s no harm in paying with a credit card if you are sure that your situation will improve the next month and you can make the repayments.
You can even apply for new credit cards and split your expenses into multiple cards. A credit card eligibility checker will let you know if you can apply for a new card.
While a credit card is beneficial to tide through tough times, it is just a way to defer payments to a later date. Since credit cards are not taking money from your bank accounts right then and there, it gives a false sense of security. Therefore, many fall into the trap of using credit cards too much.
Be Mindful Of Your Debts
Mortgage payments, car loans, education loans—these are just a few of the loans that may be piling up in this duration. If you have multiple debts or payments in a month, be mindful of the withdrawal dates. Always ensure that you have sufficient balance in the accounts to make the necessary payments.
It is easy to lose track of these payments when you have something bigger such as the COVID-19 on your mind. However, missing any of these payments makes a negative impact on your credit score and future borrowing ability.
Consider Payment Freeze
The pandemic has severely impacted the earnings of many. The government has announced that lenders should grant a payment freeze of up to three months if the borrowers request for the same. A payment freeze can grant you a temporary breather.
Note that you need to request the lender for the payment freeze. It is not granted automatically. The lender can also refuse to grant the payment freeze, in which case they must work out an alternate payment plan with you.
The payment freeze can help you get through a few months without worrying about your debts. But keep in mind that the opting for the payment freeze does increase the tenure of your loan. It can, therefore, increase the interest payable.
Opting for the payment freeze will not impact your credit score in any way. If your income hasn’t changed during the pandemic, then it is wiser to continue making your payments.
Maintain Good Credit Score
Your credit rating speaks volumes about your financial acumen. It shows how much you have borrowed, how well you can manage your finances and also tells if you are a trustworthy borrower. Apart from lending agencies and banks, a future employer or landlord can also run a credit check on you.
Clearly, it is vital that you maintain a good credit score. However, the financial strain caused due to the COVID-19 pandemic can harm your credit score. The increased spending on a credit card or missing a monthly payment reduces your credit score and shows up on your credit report.
Once the pandemic is over, and things are back to normal, you can take a credit-builder £500 loan to improve your credit score.
Use Your Overdraft
Your bank may offer you overdraft on your savings account. Currently, many banks are offering interest-free overdraft for a maximum of three months. The maximum overdraft that you can avail is £500.
Your bank may have already extended the overdraft to you. If they haven’t, you can contact them to find out how much overdraft you can get.
Update Your Insurance
The pandemic has drawn everyone’s attention to two aspects – health and finance. If your health insurance is not up to date or if the policy has lapsed, then you must look into updating it as soon as possible.
It would also be advisable to get a life insurance, car insurance and homeowner’s insurance as they apply to you. Insurance protects you from unexpected financial stress and can act as your safety net.
Rearrange Your Debts
You may have taken the high-interest loan during an exigent circumstance. If the loan is a payday loan, then you may not be able to avail the payment freeze facility too. It adds to the strain on your finances.
Now is the right time to try to refinance your high-interest loan with some lower interest options or pay it off completely if you can. Using a low-interest loan would ease your monthly burden, and you may even become eligible for the payment freeze.
Save Up For A Better Future!
Although things may seem bleak now, they will surely improve in the future if you plan accordingly. Use the tips mentioned above to save up as much as you can right now. Once the lockdown lifts and you get back to your regular job, things will definitely start to look better financially.