manage money and expenses in times of Corona and social distancing

If you are not worried about your financial future, or how your basic living expenses will be paid for for next 12 weeks, I want to congratulate you for being frugal in times of abundance. Also, you are privileged, and I hope you exercise this right responsibly (cough*donotsendyoursickemployeeshome*cough).

For those who are indeed worried about their financial future as jobs have been lost and gigs cancelled, let’s begin with what Imran Khan always says: Ghabrana nahi hai. Don’t panic. Not because it is not a worrisome situation but because stressing doesn’t solve problems. It is more likely to exacerbate them. Instead, take a deep breath, take stock of your assets and liabilities, and plan for your short-term future. I will try to help you through it, with a few suggestions.

Corona-induced recession has hit all of us differently, which is why there is no one way to handle it. People working in service, retail and tourism industries are hit the hardest. Also, how your governments react to the pandemic will influence your options and opportunities. So pick and choose from the following as per your own requirements and situation.

Action Plan

Let’s begin with identifying the areas you need help in – loss of monthly income, daily expenses, debts, retirement and cash savings. It is quite possible that you can make 70% of your expenses, and that is actually good news.

  • Step 1 is to make an ELABORATE budget. You have time now, so let’s do it. List down all your expenses, no matter how big or small they may be. EMIs, salon visits, contribution to savings, grocery, everything. This will help you see the distribution of your income, and what ends can be curtailed when going gets tough. As a rule (endorsed by many personal finance advisers as well as practiced by me), your income should be split in 50:30:20 ratio. 50% of your income is for your needs (rent, bills, groceries). 30% is for wants – like eating out and ordering in. 20% should go into your savings. In times like now, you can use your 30% to either support needs or bulk up savings. Either way, the wants budget should ideally be redistributed.
  • Steer clear of online shopping. We all have extra time on our hands now, and it is very easy to get sucked into Amazon and Douglas universe while at home in quarantine. But please stop. Don’t spend on things that you don’t need.
  • Do not panic buy groceries and household items. You need supplies for a maximum of two weeks, not 24. People are over-buying things like toilet paper, paper products and canned goods that could last for months. This takes away money that you can better utilise otherwise.
  • Postpone bill payments where possible. Many companies now offer deferred payments at no extra charge, including some credit card companies. Pick up the phone and talk to them. If they can postpone payment or get them to agree to further breaking down your payables into smaller amounts spread across more months, it’s a win for your personal cash flow.
  • Do not make any emotional or hasty decisions regarding your investments and debts. Interest rates have dipped much lower than expected, which means that savers stand to lose and borrowers can secure funds on much better terms. However, this should not direct your actions. Do not go selling your shares and investment funds (unless you are in the market and can monitor fluctuations daily to make informed decisions) in fear of a further decline. Similarly, do no accrue debts just because borrowing is cheaper now. If you don’t have a ton of savings, now is not the time to go on a stock-buying spree because of a thread you saw on Reddit.
  • Reach out to your yearly subscriptions and see what you can put on hold. Gym memberships, train tickets, etc. A penny saved is a penny earned.
  • Lean on your community – I have lost count of how many times Berliners have restored my faith in humanity. From offering free shelter to food and friendship, they are a generous and empathetic lot. Don’t be afraid to ask for help. You can even barter your expertise for what you need; I have seen multiple offers to help on Berlin Creatives and Berlin Freelancers Group on Facebook.

Now let’s talk about the situation in Germany, and more specifically, Berlin

A few weeks ago, Chancellor Angela Merkel called for a nationwide closure of all bars, clubs, theatres, opera houses, museums, exhibitions, movie theatres, casinos, gyms, swimming pools, playgrounds, Religious congregations, civic associations, brothels, school and daycare centres in all 16 states. In addition, borders with all neighbouring countries were closed and flights suspended. She also mentioned that about 70% of Germans might get infected (as of today, there are 40,421 reported cases, with 229 deaths). Although the fatality rate in Germany because of Covid’19 is still much lower than the European average of 3.8%, it still paints a bleak picture of our circumstances and foreseeable future.

So, what can we do to be frugal in times of Corona? All of the above measures suggested. In addition:

  • If you are struggling to make ends meet and cannot pay rent, the government has put a legislation in place where a landlord cannot evict you and has to let you stay until June 2020. You need to speak to your landlord and explain your situation, and hopefully they will let you delay rent payment. In case they do not cooperate, you can seek legal help. Please understand that your rent is not written off, just delayed. You will have to eventually pay.
  • The government has also set a provision of €40 billion to help out small businesses (up to 10 employees), self employed professionals and freelancer for liquidity assistance. Ten billion would be given as direct grants to ailing one-person operations and small businesses. The remaining 30 billion would be given in the form of loans (with low interest rates as the fund is backed with the federal government creditworthiness).

For those who are still earning and getting paid, or have enough disposable income to get by comfortably, maybe you can donate some and help out those in need. Spend your money with companies that have publicly committed to ethical practices that help their employees and consumers. Buy from local small businesses whenever possible, especially those hit hardest, like restaurants, theatres, and small shops. One way to support your favourite spots when you’re not going out is to buy gift cards—they’ll benefit from the revenue now, and you’ll have some fun to look forward to in the future

To conclude, we don’t know what’s going to happen with the market or the economy. It looks bad right now, and may get worse. While we can’t control these factors or the wreck Covid’19 will havoc, we can control our spending, bulk up emergency fund and be mindful of those around us. Help when you can, maintain social distance, offer to help elderly neighbours with chores that require them to go out, and lastly, wash your hands.