By: Irene Nambi Kafeero
The year 2020 was unprecedented in so many ways. When 2020 started, with all the possibilities and promise a new year brings, we did not think a global pandemic would plunge the world in to an abyss of anxiety, uncertainty and all manner of stress. Nonetheless, it is not the first crisis of global proportions, even though it seems to be the first to affect developed and developing countries alike in this modern era.
With the resulting unexpected economic downturns, spending habits may require a few changes as households must balance meeting their priority financial obligations, such as debt payments, while keeping up reasonable levels of consumption.
So, think to yourself, will the global pandemic that is COVID-19 sink you or will you weather the choppy waters and stay afloat?
SINKING MINDSET
There were all sorts of memes about 2020 being a write off, as well as serious conversations, implying that the levels of helplessness people are feeling are translating into an inability to look ahead, plan or simply have anything to look forward to. This paralysis can lead to a downward spiral with devastating effects for self and the family at large.
Yes, mayhem broke out in March 2020 when the government of Uganda first declared a lockdown and actively put measures in place to curb the spread of the virus. With schools, entertainment venues and religious centres shut down, and social and cultural gatherings restricted, the economy is still in paralysis several months later with no clear end in sight.
These events continue to have adverse effects on people’s livelihoods, the most prominent being the rising rate of unemployment which has reduced disposable income for households and consequently hampered their ability to meet their basic needs. As several families are struggling to survive, they also have to deal with unexpected lifestyle changes that resulted from restricted movements and school closures.
Under these circumstances, it is not rocket science why one would be done with 2020. Why one would stand still and wish to be dropped into 2021? But hang on; will the turn of the clock magically bring transformation?
As ventures are going under and dreams are stalling, there are some who are pivoting and reinventing themselves, maximising the opportunities in their sphere. Increasingly, we are embracing the possibility that there is a “new normal”, and that things may never be the way they were before.
So, for the sake of keeping your household afloat, how do you need to think about and manage your resources amid financial uncertainty? How are you adapting instead of sinking?
SWIMMING MINDSET
To stay afloat when swimming, one needs to:
1. Breathe
2. Glide
3. Coordinate actions
This technique can be transferred to managing your household finances successfully, so why not:
1. Breathe – Take stock. What are you earning, and what are you spending on? Has your income decreased or any of your income streams vanished?
The lifestyle changes resulting from the pandemic have meant that spending, saving and investment habits have changed. For instance, you may not be staying out late because of the curfew which means there are savings on entertainment but in turn, you are spending more on child welfare now that the children are at home. Therefore, trying to match your income with your expenditure will help you to see which expenses are mandatory (must have), and those that are discretionary (can do without). Otherwise, without taking stock, it may be difficult for one to correctly assess their financial position and plan accordingly.
So, simply list everything you spend on and what you earn; then categorise these to understand what is fixed, what is flexible and what should be eliminated altogether. From this, you can then know what wiggle room you have.
2. Glide – Plan, so as to stay ahead of unexpected changes. What do you want to achieve in terms of financial goals, and how can your income get you there?
Once you have an idea of your current financial position, you can assign spending limits based on your income. Do this by formulating a realistic budget, and be clear about your priorities, ensuring that your fixed expenses are mostly catered for; these may include rent, loan repayments, utilities, and/or insurance payments. Leave room for savings; this may seem difficult in the current environment but saving remains essential nonetheless. Households may still be able to put some money aside by lowering their saving goals temporarily and minimising their variable expenses which may comprise of groceries, clothing, entertainment, holidays, and the like.
It is also important to manage your current level of debt, now more than ever. Your loan payments should be included in your fixed expenses because missed payments could lead to expensive penalties from your lender and only serve to increase your debt burden. If your ability to keep up with your loan payments has been severely affected during the pandemic, you may consider requesting your lender for credit relief, which may typically take the form of reduced monthly payments and an extended loan term, or a repayment holiday where you do not make any payments for an agreed period of time. However, credit relief should be taken with caution as it is a temporary solution; the deferred payments will have to be repaid in future.
3. Coordinate your actions – Track your spending and confirm that it matches your priorities.
Stick to the budget to help you see if there are needs that are not being met. Continue to look for places to reduce your expenses and/or find ways to earn more income. Avoid the temptation to meet your current needs, such as household consumption, with a long-term debt; delayed gratification can save you long-term pain.
All in all, even if you do not follow the steps prescribed here, do something. Without belittling the gravity of the helpless situation that is COVID-19, we cannot afford to stand back and remain clueless. The powers that be do not have the final say nor the real power to effect change in your own home. They might influence at a macro scale, but you are the manager in your micro setting, and you have what you need. You are enough. Swimmers are assured that the water is not a threat, it starts in their mind. They know they can do it, so they take a dip. Sink or swim? It is all down to you.