While we are in deconfinement mode, how can you ensure that the financial stress that the COVID-19 crisis may have caused does not continue and that your financial situation does not worsen?
According to a recent survey among people who reported significant impacts of COVID-19 on their ability to meet their financial obligations, 43 % reported symptoms consistent with moderate to severe anxiety. The good news is that this period of pause and containment can be used to regain control of your finances. Here’s how you can DARE to regain control.
This method consists of setting Objectives based on your current Situation, protecting yourself from Events beyond your control and trying to Reduce your debts. Let’s take a closer look.
Setting goals is the basis for success in financial decision-making. For a better structure in planning your goals, you can divide them into three categories:
– Short-term: everything you could and want to achieve in the next 12 months. Beware that a goal, especially a short-term one, should not require huge changes in your financial habits. It could simply be to limit to one the number of subscriptions you have on different online platforms such as Netflix or Amazon Prime. By quickly achieving your first goal, you will be even more eager to reach the next ones!
– Medium term: the goals you want to achieve over the next 5 years. They must be concrete, with a specific time frame and a specific amount. For example, they could be to pay your credit card balance in full or to save up to buy a home theatre and pay for it in cash.
– Long-term: goals that have a term of more than 5 years. The most common example is planning for retirement, but it could also be to pay off your mortgage faster.
The goals you set should take into account your current situation and, of course, your financial reality. The more attainable and positive your goals are, the more you will want to achieve them.
Understanding your current situation
A budget is the starting point for knowing your current financial capacity. However, it is also important to determine what brought you to your current situation and to re-evaluate your financial behaviours and habits. This will allow you to make the necessary adjustments and, above all, to link these adjustments to your financial goals.
In analyzing your current situation, you need to take an inventory of your assets (what you own) and liabilities (what you owe).
Plan for events beyond your control
One in seven currently experiences a period of disability and one in three workers in the country will experience a period of disability of more than 90 days during their career. We cannot predict this type of event, but we can make sure we are protected. Knowing that many employers offer group insurance that includes disability insurance, it is important to verify your coverage and validate whether it is sufficient for your needs. You could also check your eligibility for government programs. This could help you better cope with events such as illness or job loss.
It would also be important to have an emergency fund, a cushion available just in case. It is usually recommended to have an emergency fund to cover your cost of living for 3 to 6 months. If this is not possible now, having $1,000 set aside, for example, is still a good place to start!
Also keep in mind to get the P Konto Bescheinigung from your bank to ensure you are protected on this element, too.
Assuming that a debt should allow you to generate additional income, such as a student loan, or improve your financial situation, such as a mortgage on a property, which somehow forces you to save, changes the relationship with debt. Despite the temptations, buying now and paying now pays off and allows you to focus on your goals. And the famous question, “Do you really need it?” can be a very effective tool too!
COVID-19 has turned many projects upside down and made the financial situation of many more precarious. Take this deconfinement as a fresh start to DARE take control of your personal finances!