The global pandemic has altered our expenses, how we’ll be achieving financial goals and methods for building our wealth.
Now more than ever, it’s critical to find ways to save more and spend less. Preparing emergency funds for critical situations like this ongoing global pandemic will aid you in the long term. You must throw away your consumptive behaviour and allocate more of the money you have for saving and emergency funds. Given the risk of layoffs, businesses that are deserted and even bankrupt, have a high risk in a pandemic like this.
Here are some financial budgeting tricks you could start with:
Use the Zero-Sum Approach
Jovan Johnson, a financial planner from Piece of Wealth Planning in Atlanta, USA, suggests a zero-sum approach for every bit of money you have. This approach makes his clients make good use of their money to pay bills, spending, or use it to build future wealth. Eventually, this approach turns your investment and savings goals into monthly bills so that you can make sure all money is spent, saved or invested properly.
Label Short-term Goal Savings
Saving for your goals in the same place is not the most efficient way to do it. Especially when you also keep long-term savings there, such as having an emergency fund mixed with your short-term savings like a vacation fund. It becomes complicated and harder for you to track your goals and can potentially erode long-term savings. To avoid overspending, label each of your savings balances. Having a savings account that’s labelled with a specific purpose makes it impossible for you to use other accounts to spend excess money.
Housing Costs No More than 30 percent
According to Riley Poppy, a financial planner from Ignite Financial Planning in Seattle, USA, budgeting for the cost of a house is ideal, especially when planning to buy a house. The cost of a home must not be more than 30 percent of your monthly income.
Live on 70-80 percent of Income
Plan your life using 70-80 percent of your monthly income. This can help you save for a specific purpose and avoid overspending. Using all of your income can make you have unnecessary expenses and prolong you from achieving your long-term goals, such as retirement or your children’s college savings. Once you get used to this new lifestyle, you won’t spend the remaining 20-30 percent on savings.
Evaluating Current Source of Income
Whatever your source of income is, be it as a merchant, freelancer or employee, the risk of a drastic reduction can occur at any time. To prevent the worst-case scenario, it’s a good idea to change a few of your expenses in your financial planning. Existing money should be used for more important needs, both for daily purposes and for emergencies in the future.
For example, your expense items are classified as: Living – Saving – Family – Entertainment. In the current vulnerable condition, it should be changed into: Living – Saving – Family – Emergency Fund.