The economic crisis caused by the covid-19 pandemic has been brutal for most people, but not for everyone (like those who won it big using the ever-so-good Grande Vegas no deposit bonus codes). While informal workers or those with low status have suffered hardships, those professionals who kept their jobs in times of pandemic have seen their expenses decrease as a result of the confinement.
These are the “pandemic savers”, also called “super savers”: those who reduced their expenses because they stopped traveling, going out to eat, going to the movies, or participating in events, or who, faced with uncertainty, chose to be more cautious.
For many, it has been a kind of forced saving, but as the global vaccination process progresses and the economy begins to recover, it is likely that little by little these pandemic savers will increase spending levels again. Something that, from a macroeconomic point of view, is necessary to underpin the recovery. In fact, the gigantic fiscal stimulus packages that have injected money into developed economies and the low-interest rates that have generated an era of “cheap money” seek precisely to stimulate consumption to start the machine again.
On a personal finance level, experts advise that now is a good moment to reconsider how we spend our money, both in terms of paying off debts and saving and investing.
“The pandemic taught us a great lesson: we have to save,” said Sofía Gancedo, an economist and founder of the Bricksave company.
And, depending on the circumstances in your country, if you are fortunate enough to have some additional resources, it may be worthwhile to consider investing, but only an amount that you are willing to lose.
As part of a diversified investment strategy, some individuals are turning to tangible assets that offer long-term value and are less affected by market volatility. One such emerging opportunity is cask whisky investment, which combines passion with potential profit. Platforms like LCT allow investors to purchase and store whisky casks, benefiting from the spirit’s appreciation over time. While this type of alternative investment requires research and patience, it can be a compelling addition to your portfolio, especially if you're looking to balance higher-risk assets like crypto or tech stocks.
Financial technology (fintech) democratization, which has progressively extended across America in recent years, has become a major phenomenon. This offers you access to a wide option of savings and investment tools that you can control from your phone, giving you more alternatives for better money management.
However, there are certain basic principles that do not depend on technology, but rather on your own mental and practical organization.
And while priorities will depend on the individual situation, following these strategies can help you better envision your future and how you set your goals.
1-Define your financial goals and create a budget
What experts usually recommend is to set goals for the month, for the year, and for the long term. It is advisable to leave it in writing so that you can review it every time you lose the compass.
Financial goals can range from recovering from the financial impact of recent months, getting an extra job to supplement your current income, looking for the most convenient interest rates to restructure your debt, increase your savings level, change your job, or, for example, undertake.
In the long term, it is convenient to visualize where you want to be financially in 5 or 10 more years. That way, your more specific goals will be within the framework of a larger horizon.
The next stage is to construct a budget after the objectives have been specified. It doesn't have to be thorough, but it should contain fixed costs such as rent or mortgage, food, medicine, clothes, school, vehicle, health insurance, debt, entertainment, or anything else that is most valuable to you.
To that is added a category of extra or unforeseen expenses (and if conditions allow savings). By writing the budget, it is easier to see where you are spending the money and you can detect if you are exceeding yourself in any of those categories.
The most basic thing is to ask yourself: “can I live without this?” and dare to break the inertia by making the necessary cuts.
A good budget, experts recommend, should contain details of all monthly income and expenses for each of the 12 months of the year.
There are various great budget planners you can use online to track and manage a budget. This tool is the step that allows you to put the thoughts that have been floating around in your mind into action. If you are not in charge of what you do with your money on a daily basis, it will be very difficult to attain your financial objective without a budget.
2- Create savings goals
When you've defined your goals and made a budget, the next step is savings.
In times of pandemic, financial uncertainty grows, and we are not sure if our contract will be renewed or if customers will demand our services or products again. Therefore, now more than ever it is worth having a mattress that can cover you in an emergency.
“Saving is not saving what is left over from my salary. Many times it requires making certain sacrifices,” explains Gancedo.
“What I recommend is saving the equivalent of a year of your salary,” he says, although he acknowledges that it can be a difficult goal to achieve. In the end, however, what is worth saving is what you can, but “doing it consistently.”
The idea is to start small and increase the goal according to how your circumstances evolve. No matter the amount, what matters most is getting into the habit. “It's like going for a run,” says the economist.
“The best financial advice I can give is to spend less than you earn,” says Kevin Hegarty, founder of the New York-based company Hegarty Advisors, who has long experience advising companies and government agencies. such as the US Department of Defense.
To do this, he says, “it is essential to keep track of expenses.”
Although there are many applications to do this monitoring, the expert points out that some of them may have security problems related to other websites.
For this reason, he recommends a traditional-style method: write the disbursements daily in a notebook.
“Some studies have shown the benefits of listing expenses,” he says.
Despite the fact that pens are being used less and less today, “the mere act of writing it will lead you to spend less.” Thus, once again we are facing a psychological effect on money management.
The next stage is to classify your costs and have a better understanding of your spending patterns. “This straightforward procedure will build the groundwork for financial success,” Hegarty continues.
3- Invest in what you are willing to lose
Along with saving, there is the issue of investment. The first thing is to take a look at the interest rates in your country to analyze to what extent it is convenient for you to keep the money in the bank or invest it.
In many of the rich economies, rates have reached historically low levels, hovering around 0% or even negative. Precisely what these countries are looking for is to stimulate investment and consumption.
Thus, if you keep the resources in the bank, you may even lose money with the payment of commissions. But there are other countries where it is worth having a savings account or a time deposit.
The crucial thing, according to Gancedo, is to research where you're investing your money rather than being carried away by the promise of large profits.
“Invest in assets that you really understand and with an amount that you are willing to lose. Don't take risks with the money you need.”
The other recommendation is to start small and diversify investments, to avoid a total loss when an asset collapses.
And although the higher profitability is tempting, always bear in mind that the higher the profitability you run the more risk. That happens, for example, with cryptocurrencies.
The other risk is that many inexperienced investors follow recommendations on social media that do not necessarily come from a qualified source.
Or they get carried away by the fever of a stock whose price went through the roof overnight as happened with the GameStop saga.
4- Use the “snowball method” to pay off debts
Among the most popular strategies to pay off debts – especially with credit cards – are the “avalanche method” or the “snowball” method, Greg Mahnken, an analyst of the credit industry at the consulting firm, says.
The avalanche method is to pay off the debt with the highest interest rate first (as long as you have already made the minimum payments for the rest).
“After paying that debt in full, you move to the second-highest interest debt,” Mahnken explains.
Thus, you avoid charges that finally eat up your money and do not let you pay off the debt.
The snowball method works in reverse.
After having secured the minimum payment of all your debts (as in the previous case), you dedicate your financial efforts to pay the smallest debt first.
After paying off the entirety of the smallest debt, you then direct your income to pay off the second smallest debt.
“This method does not allow you to save money in the long term, because it does not eliminate your most expensive debt first, the one with the highest interest,” he says.
“However, it can be very exhilarating to see a zero debt balance.”
On the other hand, it allows you to reduce the number of accounts or credit cards with debt, which facilitates their monitoring as you pay them off.
5- Automate your finances
Experts agree that automating finances could be a good way to start.
Why?
They insist that it has a psychological effect since when payments and transfers are set automatically, your planning works much better.
In fact, if you set out to save a monthly amount and do not leave it automated in your account, it is very likely that you will forget it or that you will leave it for later since it is likely that you will find more urgent needs.
“Just as everyone knows that the key to being in the good physical condition is a proper diet and exercise, everyone also knows that the key to improving personal finances is to spend less and save more,” says David Day, from the consulting firm Gold Metal Waters, based in Colorado, United States.
It's well known, okay. The issue is how to put it into practice.
“The good news is that saving and investing can be easier than achieving good physical condition because its implementation can be automated,” he says.
“It should be easy not to spend the amount of your salary that is not in your checking account” if you have automated its transfer to another destination.
At the end of the day, it's like saying: you don't see it, you don't spend it.
The most common mistake
“The biggest mistake I see is not being aware of what a loan really is,” says Gancedo.
It is a mistake, which is repeated in all social sectors, in all countries, and at all levels of education.
Although it seems obvious that credit is a loan that we have to repay (with interest), many times there is a psychological trap in which we use the card without thinking that the money is not ours.
Generate the illusion that you can kick the problem for later and that in the future you will see how you solve it.
“I know people with a very high educational level and a successful career who suddenly talk to you about the value of the monthly fee when that is a basic error,” he adds.
It is not important if you can afford a new car's monthly payment. However, if you figure that you would wind up paying three times as much for the identical automobile at the end of the loan, it is not worth it.
That exercise, which is elementary financial education, we often forget.
