• ETF Enthusiast

Lock-down your finances during lockdown

Life is not easy for millions of people right now. The nationwide lockdown has hit the pause button on many households income. It’s a difficult and unprecedented time for our financial positions. In a time where the income of so many has come to a screeching halt, it is useful to use this time to focus on improving areas which are under your control.

Tough times spark action, and if you are in a position where your finances have been severely affected, this is a good time to improve your understanding of your financial makeup and to set up a plan for how you are going to bounce back from this.

This brings us to our first activity to locking down your finances during lockdown:

Lock-down your finances activity #1: Take stock of where you are at

Do you know what your current financial situation is? In order to create wealth you need to get your head above water first. So it’s important to understand where the surface is.

To do this, I like to make use of a personal balance sheet (technically now called a statement of financial position). You are a business after all. You have an income stream, you have monthly overheads and expenses, and you should be trying to make gains every month to improve the businesses future prospects. Are you treating your finances this way?

I should be a millionaire in a few days:

Lock-down your finances activity #2: Understand where your money goes

I bet if you ran a small business you wouldn’t want to spend money in areas which bring no value to the business, especially when you are fighting just to survive. So download those bank statements and interrogate those entries. Create categories and group those expenses. This is a good time to gain better insight into where your money goes during the month.

Knowing where your money goes is one of the most important steps to taking action to improve your financial situation. If you are spending money on areas which don’t provide you with the value of they are costing you, I suggest you evaluate if they are worth keeping.

This was a better month for me. To be honest my costs have been creeping in the wrong direction lately:

Lock-down your finances activity #3: Check what your investments consist of

It is always helpful to go a layer deeper with your investments. Behind every portfolio of investments and assets is a deeper story. Mine story looks like this:

If I take into account all of my assets by adding in my flat and my car (mentioned on my balance sheet) those investment contributions are diluted and I can view the complete financial picture:

That property contribution can often be a lot larger for many people. Often, someone’s house is the biggest financial commitment they will make in their lives. This is however a very illiquid asset, good luck trying to sell it! In times like this, being able to quickly convert your assets into cash is invaluable. I work in retail, and here the business model is about turning your assets (stock/inventory) into cash as quickly as possible. As that stock sits and ages on that shelf, over time it becomes less and less valuable as demand dries up. So in your personal business, if your biggest asset is your house, you will do well to moving that contribution to more liquid assets that you can turn to cash when needed.

Knowing this level of detail gives me power because it will inform me of what I need to do for activity #4

Lock-down your finances activity #4: Set up a financial plan

A financial plan sounds like an intimidating document to produce. Luckily I have written about a step by step process on how I created my financial plan here: A one-page financial plan

Having a written financial plan will help you to create goals and set priorities. These are very important and can underpin how you manage your money. Generally, the ultimate goal for a business is to create wealth for all those involved in it, and eventually to even make a difference in other people lives. So once again, given that you are a business, what is your long-term plan? How are you going to set up your life so that you can create wealth and make a difference for your family?

So my financial plan states that I need 80% of my investments offshore. I still have some work to do:

Finally, if you are lucky enough to be receiving your usual income during this time, you have some responsibility. This is not the time to save extra by ignoring those service providers who make regularly make use of. Those service providers who rely on your regular business to pay their employees and keep their business alive need you now more than ever. So please pay your school fees, your hairdresser and as of today in level 4, get some takeaways from those restaurants that you often visit.

ETF Enthusiast

Use your money to build assets which generate more income than you require to live