The COVID-19 crisis has caused immense disruptions in our lives, not just to our jobs but to our health as well. Businesses have been forced to temporarily shut down to support efforts in containing the COVID-19 pandemic, with some even ceasing operations due to the huge losses incurred during the community quarantine.
Saving and paying your debts depends mainly on a few criteria which are: If EMIs interest rates are low then save money first before paying EMIs. Secondly, if your rate of interest is high then pay your dues first and then save money. Thirdly, check your income and spending together by making a proper budget plan, then decide how much cash you have. Due to COVID-19, people don’t know what will happen in the future so decide accordingly.
So, here are easy ways to save money during COVID-19 lockdown that can help you have enough funds to sail through the pandemic declared corona virus.
1. Prepare Budget before paying any Dues
Remember, the budget plays a very important role to deal with any financial process. Prepare your budget in such a manner where you can divide your savings and spending accordingly. Due to pandemic lot of people lost their jobs, there are salary cuts and businesses are shut. So, income has reduced suddenly. One should revise their budget and plan according to the needs. Check what is more important first; your savings or paying the debt. Reduce the limit of your budget by cutting down all useless expenses. Spend less and save more should be the mantra these days. If you really don’t need anything then don’t go for it. Try to save money as much as possible. Even though you feel you are not in need of emergency funds save some part of your income. Try to clear all your dues on time sequentially to avoid any extra interest charges in the future.
2. Build up your Emergency Savings First
You’ll need to continue paying current bills but aim to have $1000-$2000 in your emergency savings account before tackling longer-term goal savings or paying off debt that you may have. Not only will that money provide peace of mind and increased psychological well-being, but it will be critical for the unexpected expenses that will inevitably come. It is important to avoid additional borrowing as you’re paying down other debt and having that cushion will help to do so.
3. Pay your dues if the Interest Rate is High
If you have saved some emergency fund for the future then try to first pay your all your debt. Else, you will get trapped to pay a high rate of interest in the future. If your income is strained to a level where you have to pick between your EMIs and continue your saving options, pay your EMIs. Even though you have the option of delaying your EMIs with the RBI-mandated moratorium of six months, you should prioritize paying your EMI dues.
Remember, investing your money is optional but paying your EMIs is an obligation. You can pause or cancel your savings for the time being but to avoid any high rate of interest and extra charges repaying your debt on time is mandatory and an obligation for all. If you deferred the first five EMIs of a 20 year home loan, you’ll end up paying 30 EMIs. Hence, using the moratorium while you can pay your EMIs is a costly option.
4. Don’t Indulge in Hoarding
Like every other crisis, people are fearing the unavailability of essential items and hence stocking things during corona virus lockdown. But they fail to understand that panic buying does no good. In fact, it can harm you in two ways. Firstly, it may pinch your pocket as you spend more, and secondly, it restricts access of items for others which lead to black marketing and ultimately shooting up of prices.
5. Cancel Unnecessary Subscriptions and Memberships
Don’t worry, we are not asking you to cancel your Netflix subscription. But you surely can cancel your gym membership as you can’t really use it during the corona virus lockdown. Similarly, you can find out other such memberships and subscriptions which are either not feasible or can be avoided during the lockdown.
6. Pay down Debt
After you’ve funded your emergency savings, then it’s time to pay off big debt like credit cards or personal loans. The most important number you can pay attention to when paying down debt is the interest rate start by putting all your extra payments to the debt that is charging the highest interest (usually payday loans, followed by credit cards and personal loans), then go down the list from there.
7. Go for Emergency Funds if your Interest Rate is Low
It’s important to keep in mind that an emergency fund is something that will always help you in need. Nobody can predict the future, so if you think avoid paying EMIs for 6 months by option RBIs loan moratorium option then go for it and save money as an emergency fund. Your emergency fund should be more than 3 months EMIs. You have to cut back as much as possible in order to keep the cash flow. Prepare yourself for any next emergency now.
8. Replenish Savings
Throughout all this, remember that whenever you need do dip into your liquid savings account, replenishing it becomes your new primary goal. Rebuilding those emergency funds will be critical for a future, unexpected expense. To do this, you may need to pause your other goals for a short time.
9. Long-Term Savings
Once you have paid off the high-interest debt, start on your savings for any bigger goals you have. These could include a new car, home, college savings, or other larger expense.
10. Social Distancing does not mean Social Isolation
Reach out and check in regularly with people you care about. Make that phone call, or even video calls using Facetime and Skype. Or send a text or whatsapp. Be part of social media community groups. There are also groups that screen live stream events on YouTube and Social Media platforms. Gaming communities, Reddit are also other social ways of connecting with others. So even though we may all be keeping physical social distance, we can still connect with one another online in virtual spaces.
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