- Create a Back-Up Plan
In the event of a loss in income, figure out for how long you can subsidise this amount using existing savings, assets or new earned income. Brainstorm ideas on your available options and consider other ways you could create income or use existing assets in your business. E.g. Online sales are still happening and people may need your help, courier & postal deliveries are running, set up a simple online payment system such as paypal.
Prepare a household budget. List all of your monthly expenses. Make sure you include the money that you spend on your rent or mortgage, as well as transportation, leisure activities and groceries. (see our blog on ‘HOUSEHOLD BUDGET’)
Next, start to eliminate non-essential items like second car payments, gym memberships, entertainment etc. Call your bank and ask for your mortgage to be put on hold, some banks are even writing off monthly payments without interest. Negotiate a rent/lease freeze for a few months with your landlord. Get back to the bare-bones number you need each month to survive, financially speaking.
2. Start your Emergency Fund account
The next step is to start a savings plan that will help cover your minimum monthly living expenses. You may also have business costs to factor in such as insurance, website domains, advertising, and staff on leave.
Ideally, you should have enough money in a savings account to pay for all of your basic living expenses for a three-month period, though keep in mind some recommend that a year’s worth of savings is more practical. This extra cushion will ensure you have the funds to continue business as usual while you work to find more income.
However, if you do not have savings, start cutting back tightly on expenses, so that you can afford to survive for three months without a wage or normal income levels.
If you are being paid or have a surplus of income, pay 10-30% of that extra income into a new savings account that you do not touch, maybe choose a different bank than you usually use. You will be surprised at how soon the balance can add up and it is wise to keep a buffer account in case the crisis lasts longer than expected or returns again.
3. Check Your Insurance
Is your business covered in the event of an environmental health disaster, such as Covid 19? Have you income protection that will cover your lost income? What about your medical insurance should you fall ill? Is your Home insurance policy in place? Do you have life insurance to pay off the mortgage and provide for your family in the event of your death. Be sure your policies are up to date and take the time to review your coverage to make sure it’s accurate and sufficient for the future. Additionally, if you find that you’re paying too much or for duplicate coverage, this could be an opportunity to further trim your monthly expenses.
You might look into taking out life insurance. With even a simple term-life policy in place, you can rest easy knowing your family will not have to endure financial stress if something were to happen to you.
4. Diversify Your Investments
In addition to diversifying your income, it’s also important to diversify your investments. If you have most of your money tied up in stock market investments, an economic downturn could be a financial disaster if all your money is held in one type of investment. Keeping some money in liquid form does not pay high interest and it can be worth less over time due to inflation, however it’s accessible and fairly safe. Thereafter aim to invest in a variety of assets, businesses, property, shares, funds (low to med risk), commodities (metal bullion such as gold, iron ore, oil, gas, Casks of rare Whiskey & Wine). Review your investments with a long term strategy in place to rearrange your portfolio where needed.
5. Be Ready for the Big Comeback
There is a risk that the Covid pandemic will last so long that it will close businesses due to lack of cashflow, household debt could increase, and government funds dwindle. However Ireland and other European countries were all experiencing growth up to now and it is likely that economic stimulants will be used to kick start our economy to prevent a recession. Demand for products and services will surge once the lock down is lifted.
Now is a great time to re-assess how you are delivering your good or service, online sales, postal deliveries, local demands, new products. If you are in business, people will still need your goods or services once everything re-opens. Use this time to get ready to meet people’s needs. Knowing where and how to find new clients is more important than ever.
If we learn from the Covid19 health epidemic, we should take actions to hedge against any further financial exposures, by being able to stay open during a lockdown (create alternative to normal products/services), knowing your delivery route to market, keeping in touch with clients, knowing how to find new clients. Having a disaster recovery plan in place now helps get you get back to business faster and will help you manage even better if there is a next time!