Surviving financially through the lockdown
Making it through the month = knowing how much after-tax cash you have available and only spending that amount or less. This sounds straightforward doesn’t it? The trick is in knowing what amount of “cash” is available.
What does available cash mean?
If you ARE NOT earning an active income, available cash is that money that comes into your bank account after taxes have been paid (or after you’ve taken your tax figure into consideration) in the form of passive income generated by your investments (and possible allowances from others if you have a benefactor of some sort). If your investments do not generate sufficient income to be able to sustain you financially through the month, then your cashflow situation is reliant on good returns to fund the balance of your required income and this is where problems begin.
If you ARE earning an active income, available cash should be your salary or wage or commission or director’s fees amount that you receive in your account (after tax has been taken off of course).
How do you do an assessment of the health of your monthly budgeting?
There are two methods: The first method involves analysing your current spending habits and then adjusting them as required in order to ensure that your desired lifestyle is sustainable. In other words you would analyse the previous month’s bank statements and cash till slips to determine exactly how much you spent and what the shortfall was. The second method uses a figure that you know that you require at the beginning of each month to cover your lifestyle expenses. This is the method to use if you have no till slips available or if you have just started a new job or just retired and therefore are not able to use the previous months’ spending patterns for the exercise.
Steps to be followed when collating all your expenses for budgeting purposes whether you use the first method or the second method (and this needs to become a habit):
Add up all your expenditure items for the previous month and then look at all your bank account and credit card balances to ascertain if there was as much money left in them at the end of the month as there was at the end of the previous month (also deduct any amount that you may have transferred into your accounts during that month that will not occur regularly in order to calculate only that which will be available in your accounts in the months to follow).
In your tally you must include all your cash till slips, your debit orders, your electronic payments to suppliers, your pay as you go expenses and so on in order to ensure that every item is included.
Once completed, you should arrange these items in two categories, namely Essentials and Non-Essentials. This sounds easier than it actually is, because we often regard items that we purchase weekly as essential items when they are in fact often not. They’ve just become an habitual purchase.
This part of the exercise is where the hard bargaining begins. You think that it’s essential to have two six packs of beers, a 500g pack of droewors and a kg of biltong each week, while she doesn’t. Meanwhile, she feels that a new outfit or weekly manicure is critical.
It’s very important to include everything that you normally buy so that it gives you an opportunity for discussion about each item, as embarrassing or infuriating as it may be for one or both parties.
I find that having a financial advisor involved in these discussions can be useful as it adds an objective observer/referee to the negotiations to keep things civil because it is interesting how defensive we can become when our habits are subjected to criticism.
Once the Essentials and Non-Essentials lists have been compiled and assuming the marriage (if there was one), is still intact, it is a good idea to rank those non-essential items in order of most important (emotionally difficult to do without) to least important. It is important that both parties agree to do without all of their non-essential items immediately, except for the favourite three (or one or two, etc).
What I then advise couples to do is to agree that each may retain their most favourite three items for a month, then the next month they get rid of the third most loved item, the following month they get rid of the second most favoured item and at the end of the third month, they both get rid of their most favoured non-essential item. This allows both to feel the pain of having to do without, which often helps them to be sympathetic to the other during this process and this helps soften the blow for both.
This exercise can be repeated if the budget is still not being met and it is a good idea to go through the process again anyhow because it is often easier to let go of other items that you felt previously were essential once you have become accustomed to surviving with less.
Changing our habits is one of the most difficult things to do.
However, it is such a wonderful feeling once you realise that you can do without something that you thought you were hooked on. It is a real achievement which not many manage to do and it is very helpful because it helps you to survive financially and probably also strengthens your relationship with your partner as you have both been through the journey together and will be proud of yourselves and of each other.
Not an easy exercise to go through, but very worthwhile and possibly crucial to your financial survival.