The skills needed to manage your money are essentially the same as they have always been. The difference is that the effect of any mistakes could be amplified by the general economic conditions. With that in mind, here is a quick run-down of the basics of financial management.
Work out your priority payments
Your priority payments are anything needed to keep you fed, clothed and sheltered. Right now, there is some nuance to this because of the special measures put in place due to COVID19. This means that if you really can’t pay some essential bills, e.g. rent, you have some level of protection.
That said, it is very much preferable to make at least token payments if you possibly can. Firstly, these act as a sign of good faith to your creditors. This may come in useful if you need to negotiate with them later. Secondly, creditors are likely to be adding interest to whatever you owe them. Anything you can pay will help to keep this interest down.
Aim to eliminate non-priority commitments
A commitment is a payment you are legally obliged to make no matter what. It’s generally best to avoid making non-essential commitments at the best of times. When money is tight, avoiding unnecessary commitment can be vital to staying on the financial straight and narrow.
Be very mindful about thinking through the practicalities of any contract before you sign it. For example, standard “handset plus a service bundle” mobile phone contracts are often terrible value for money. By contrast, buying a handset and signing up for a month-by-month contract can give you a nice balance of economy and flexibility. Pay-as-you-go can give you even more flexibility but may not be as economical.
If you over-budget, you can always put the extra money aside for later. If, however, you under-budget, then you can find yourself desperately trying to scrape together the money you need from somewhere. Alternatively, you end up borrowing, either from an official creditor or from family or friends. Either way, you then have the issue of paying them back.
Ideally, you’ll make at least a provisional budget for the whole year. This will help you to see where your major expenses are likely to be. This is also a good time to think about what ad hoc purchases you will and might need to make over the course of the year. For example, you may know already that you’ll need new trainers and you might be concerned about the state of the washing machine.
Have plenty of insurance
Cash savings and insurance have particular value when times are tough. Even a small level of savings can be enough to stop you needing to reach for credit in emergencies. Insurance offers a much higher level of protection. Remember, the lower the risk appears to be, the lower a premium you can expect. Remember also, that if finding the premium seems painful, dealing with an incident without insurance would be a whole lot more painful.
Track your spending thoroughly
Try to get a receipt for every purchase. If you can’t get a receipt for a purchase, make a note of that purchase immediately. Your phone can be very useful here. Try taking a picture, making a voice note or recording it in a note-taking app. Do this no matter how small the purchase is. Your aim is to be able to account for literally every penny you spend.
At the end of each week (or month), go through your actual receipts (and purchase notes) and see if the record of your spending matches where you think you’ve been spending your money. If it doesn’t, try to work out why there is a difference and then decide what you can do about it.