What is your plan of action if your family budget decreases or threatens to decrease? Read our budget planning advice and the most frequent mistakes by Jolanta Jērāne, Citadele Bank’s long-term savings expert.
States of emergency or crises—whether economic or epidemiological—are fairly unexpected and affect almost everyone in Latvia. This was the case in 2008, and it also applies now. We cannot avoid this unpleasant situation, but there are things we can do to prepare.
If we assume that a person’s way of thinking has a large impact on what they do and what results they achieve, it is important not to panic or fall into mass hysteria right now. Rather, you should be putting your family’s affairs in order with a calm head. This means developing a plan of action starting with small, everyday things and finishing with big decisions for emergency situations. Everyday activities include re-planning the family budget, or simply planning it for the first time if you did not do so before. If your current or expected income has been reduced or threatens to decrease, your spending must also decrease. Have a look at your daily expenditures and figure out what categories have automatically disappeared (e.g. transport costs to/from work, lunch outside the home, leisure activities, children’s clubs) and which will increase as you spend longer at home.
For these kinds of crisis situations, you will find your previously-built savings (safety cushion) of around 4-6 months worth of expenses very useful. Unfortunately, only a small number of people have these savings. These are the people who are currently in much less discomfort, as they can make decisions which benefit them rather than sharply reacting to any external factors.
What should you do if you don’t have emergency savings? First, review your money management habits and, starting with the next time you get paid, set aside a small amount of money (even just 3 Euro) to start creating a safety cushion. If you don’t start now during an emergency, the memory of stress and discomfort will later fade and your motivation to create an emergency fund will diminish. To start the habit of saving, you don’t need to put aside huge sums, the main thing is to put away money regularly.
All complicated situations are tests. A test of our values, our ability to react quickly and appropriately to unexpected situations, of how prepared we are. I do not doubt that all of us—whether more or less successful—will also survive this test and return to our normal life. However, only a few (10-15%) will have used this as a lesson for the future, and those who have will have fundamentally changed the course of their life. There is no need to worry about what is happening around us. Instead, I invite you to take this as a learning experience for the future. I invite you to take the opportunities which could only happen in these difficult circumstances and learn to look around at what is happening as not just problems, but opportunities.