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COVID-19 and Personal Finance: The Ultimate Re-Set

We are currently all at home (well most of us as we don’t have vital-jobs). We can’t really go out. The only real break from home that we get is to do groceries, given that the online grocery system has effectively collapsed (and should only be used by those who cannot, and should not leave their house!). So as things stand, a lot of our expenditure has gone out the window. You’re probably thinking: so? I’m locked in my own house. I’m not doing this voluntarily, I have no choice. This isn’t what people mean when they say “it’s time to check your spending!” And true, often it’s not a natural shock people refer to when they recommend you judge which expenses you can live without, and which you can’t. But this natural shock has happened, so we might as well make use of it!


Cancel Culture From a personal finance perspective re-evaluating your spending frequently, say on a month to month basis is a good idea. You can go through your bank statements and see what really makes your life better and which was more of an impulse spend. This is what I would call a financial-detox-light. But the current circumstances aren’t light. They are quite full-fat if I may say so. I expect these social distancing, or social isolation measures, to continue for several weeks, potentially months. So what this is going to give you is several weeks (or several months) of data where from one day to the next, your entire (financial) life changed. What does this mean? Well, a lot of things you can immediately cancel. No point in paying for a gym subscription if you’ve got no clue when the gym is actually re-opening. No point in paying for delivery services if they currently aren’t delivering. One caveat: if you've paid for a year subscription cancelling might not be in your best interest, depending on how the payment and refund structure works, make sure to check that out! Another thing is those types of subscriptions such as online newspaper subscriptions. They cost money too. And you always tell yourself that you’d read them more if you had more time. Well, if you’re not even making use of them during these times, you don’t need them. Cancel them. Save some money. I can imagine during this period Netflix and other social streaming subscriptions are going to be increasingly popular, but then again, most people already had these subscriptions in place to begin with. So there is no saving nor additional expense associated with this.


Judge Yourself Ok so you have thrown some expenses out with the bathwater. Good. It is likely that as a result of that you’ll already be able to save some (more) money. Now what we’re going to see is that because your routine has just undergone a massive change, there’ll be more saving. Why? Well, the option of buying a non-fat-frappe-latte-flatte-machiatto with extra foam has just stopped existing. So has the option to do cocktails or go out to dinner. Yes, if you want some luxury in your life, you’re going to have to get it from the grocery store. If they still have any stock left. Online shopping also isn’t nearly as booming as people thought it would be. As I explained in the previous article on compliance during COVID-19, a lot of supply chains aren’t keeping up with the current change in demand of their customers. And because a lot of door to door delivery has stopped or has been reduced, the spike might not be nearly as high as expected. Those platforms that continue to deliver are understaffed and overworked. And during these times, no one feels like ordering something with a 6 week delivery time. People just aren’t bothered. So the increase in expense we expected to see there, might not be happening to the extent that was expected. If there is an opportunity to spend, people tend to spend. But most of your opportunities have just been taken away. For the world as a whole, this is a nightmare. For most people’s personal finances this might be the re-set that the consumer-society needed. What you can learn from this period of reflection is whether you need all the expenses you normally make during the week/month. Do you need to go out for dinner so often, or could you cook and have dinner in? Potlucks are fun too. Do you constantly need to go out to drink? What’s wrong with mixing your own cocktail and having a mixing competition with friends? Once physical social interaction is allowed again, I do hope to see a shift. I do think social isolation will have made quite a few people a lot more creative as to what they can do with their time, and what they can do to maintain social contacts. A lot of people are currently playing online multi-player games whilst being in contact via Twitch, Discord, Skype etc. It’s a lot cheaper than going out for drinks, that’s for sure.


Reinstating Expenses Now COVID-19 and the resulting measures such as social isolation aren’t forever. We all know that. Once we’re allowed back out, the best thing to do for your personal finances is to have a plan about what expenses you are going to continue making, and which ones continue to be banned. You are likely to go back to the gym again, so you’ll need to pick up the gym subscription again if you did cancel it. Unless (be honest) you never really went to the gym before COVID-19 happened anyway. In that case, leave it on cancelled. Lots of people have found the joys of home work-outs, and maybe that’s more your speed. From the previous section I hope you have learned that going out to dinner/drinks adds up quickly, and maybe, that’s an expense that really doesn’t add much value to your life. Make sure you have a budget for how much you are willing to spend on going out per week/month now that you’ve had a period to reflect on it, and stick to it. Same goes for online shopping. You didn’t want to buy things if you had to wait a longer period of time for them. But as the supply chains normalize and the delivery services get up and running again, will that make much of a difference? When reinstating your expenses be very clear as to what you’re reinstating and why. Temptation always strikes, but to be able to resist spending, save money and later on be able to invest your savings is to make the most of your time and money. And that is the aim of good financial planning.


Facing Reality I know I’m writing this article from a very privileged point of view. My job continues to pay me as I work from home. I am suffering no real losses. For a lot of people this isn’t the case. A lot of people have been notified that as they don’t work, they don’t earn. Or, even worse, to prepare for an inevitable recession, or period or economic depression. People have been laid off, so the company they work for can save money on wages and move capital around to make sure they don’t go bankrupt. Luckily, quite a few governments have recognized this development and have set up buffers for people who are trapped in this scenario. Most people, especially entrepreneurs, will be able to claim part (about 80%, at least in the Netherlands) of their average earnings, both at the individual or company level. But 80% isn’t 100%. And as a result, you will lose disposable income, meaning that most people will have to cut their expenditure to make it to the next month. I know there is a massive difference between cutting your expenditure because you can and because you have to because otherwise you’ll fall (further) into debt. I don’t mean to devalue the efforts of people who have to. I just hope that these tips are still useful to you and that they may provide some help during these difficult times. If your government provides financial buffers for individuals or entrepreneurs make sure you do the right research to see what level of compensation you qualify for. Don’t be too proud to accept help. No one could have seen COVID-19 coming, nor were its consequences appropriately estimated. This is not your fault. You are entitled to (financial) support.


I hope this article can help out, even if it's just a bit. The next article (will be published the 10th of April) is on the Japanese approach to dealing with personal finance: the kakeibo. This is a means of journaling and budgetting your money, which will hopefully be helpful during COVID-19.


Behavioural Science

Personal Finance



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