Top Ways to Save Money to Manage the Financial Crisis in Covid 19
The financial crisis has very much been the top headline along with Covid-19 in 2020 and 2021 seems to be no different, although on the bright side we have got multiple vaccines being rolled out now. Still, if the statements given out by WHO are anything to go by, we cannot expect the virus situation to clear out in a couple of years.
This means that while we have to be on our guard to keep ourselves and our loved ones safe from the virus, we must also be financially prudent. 2020 was a rough year and the coming years are going to be similar if not worse in terms of financial stress.
Reason being that the virus, lockdowns and diversion of resources to combat the pandemic have eroded the financial strength of many nations. We are living through a transformative phase and if you look at transformative phases in the past, they are marked with economic crises and strains.
For instance if you look at the 70s when the gold standard was finally abolished and the world transitioned completely on fiat currencies, the global economy suffered for almost two decades before finally recovering towards the end of the 80s.
The pandemic has induced a transformation at the global level and thus, we must expect things to remain volatile for the time being. Now what does this mean for an average individual or the average family?
Well, this means that we must all become prudent and take our financial planning more seriously. 2020 was a wake up call for everyone who never took their financial planning seriously enough. It is 2021 and if you still are not making a budget, doing grocery on a list, using budgeting techniques to cut down on expenditures and ramp up your savings then what are you waiting for? Start doing all of these things before it gets too late.
We have already covered some of the basic budgeting techniques in the past. In this article we are going to go over one of the most useful technique that can be used to save money and control your finances so that even if a crisis hits, you will have financial cover to rely upon.
Create an Emergency Fund
An emergency fund can be your lifeline if any disaster comes your way. 2020 has taught us that nothing can be taken for granted in this life, be it health or your job. An emergency fund is therefore the most vital saving method that you absolutely need to adopt. We honestly, cannot emphasise it enough. Like they say, hope for the best and prepare for the worst!
Your emergency fund should have enough savings to last almost a year. So the first thing that you will need to do is calculate your monthly outflow or expenditures and then multiply them by twelve. This will be easier if you already make a budget because you can simply take the figure for monthly expenditures from your budget.
If however you do not make a budget then this can be a great way to get started. Simply add up all of your income streams. Next, add up all of your monthly expenditures such as rent, bills, groceries and every other monthly expenditure. Subtract the income from expenditures and you will know whether you are saving money or spending more than you are earning.
So, take the figure for monthly expenditures and multiply it by twelve to get a lump sum amount for annual expenditures. Now many people stop at this point, this is all they keep in their emergency fund, enough savings to last them a year.
Save up for Contingencies? Your Choice!
Now it depends on your financial circumstances, if you can save more then it is better to plan for contingencies and add another quarter or six months worth of savings in there.
Once you have planned out how much savings will go into your emergency fund, now you will need to start transferring your savings into your emergency fund. For instance if your monthly expenditure is $4000 then your emergency fund is going to require $48000.
Obviously you cannot transfer this much instantly. So to start with, aim to transfer enough savings to last you a quarter. If you transfer $1000 to your emergency fund each month, then it will take you a whole year to transfer enough to last you a quarter.
Another important thing is to keep the emergency fund relatively accessible. Many people keep their emergency savings in a savings account. Interest rates are very low at this point so the interest you receive on your savings is not going to matter much as it will be offset by inflation.
Another option is to divide the emergency funds into tranches, so you can keep the funds that can last you a quarter in your bank account where you can draw them easily and then the rest of the funds can be kept in a certificate of deposit or any other low risk instrument that pays a profitable return. In this manner your savings will generate money.
For Emergencies Only!
Having an emergency fund can mean the difference between being indebted beyond the ability to repay and staying afloat financially till you are able to sort things out. Keep in mind that your emergency fund should only be used for emergencies. We have seen in the past how people get complacent with their circumstances and then use their emergency funds to finance holidays, make purchases and what not!
Emergency funds should only be used in the case of an emergency. If you are too sure that you are in a good situation, then instead of using the fund, invest it in a relatively less risky investment option but never deplete the fund.
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