Personal financial management in uncertain times

THE HARSH reality is that unanticipated changes, many of which are beyond our control, do derail the plans of well-organised and focused persons.

In order to realise some goals, it may thus become necessary to make an adjustment in our standard of living or to change the timeline for achieving important goals.

In fact, it is necessary to review your plan systematically. It facilitates the making of adjustments to reflect changes in your personal and financial circumstances, as well as changes in the economy. When done effectively, reviewing your plan helps to reduce the shocks that unanticipated change inevitably brings.

You should not abandon planning in the face of the derailment of previous or current plans. It is still critical to set goals, organise, and implement, but plan on what you know and reasonably expect, and make adjustments as necessary in light of the changing environment.

Have regular family discussions, and share with each how the financial affairs of the family can be kept under control. Appoint a financial manager for the family if there is none.

Budgeting assumes great importance in today’s harsh economic environment. First, know your disposable income. That is all you can spend. Establish your priorities, and manage your budget tightly.

Create non-cash income: do some of the activities you would normally pay other people to do. Today’s reality makes that one quite easy as you should be reducing the access of other people to your home. Can you find a safe way to use your hobbies to create income?

Manage your credit card. The convenience it offers can cause great inconvenience and heavy burdens. To the extent you are able, reduce or eliminate such debts with lowercost debt.

Now, more than ever, avoid impulse buying. Make a shopping list, and avoid panic shopping. Stocking up can often be self-defeating as it often leads to waste if not managed effectively.

To save, monitor your finances regularly and postpone spending where possible. It might make sense to extend the life of some assets and appliances if they are in good working condition rather than replacing them now – worse, by incurring debt in the process. Reduce the cost of utilities. Restrict the opening of the refrigerator, and defrost regularly if your fridge requires defrosting. Turn off the lights when not required, do bulk ironing, check for water leaks, wash in bulk, avoid running taps, and use a low flame when cooking.

With the children at home and home becoming school, it may be challenging to manage electricity and some other costs.

This makes it more important to be more deliberate in the use of resources.

Keep healthy. Find creative ways to exercise at home. Get adequate rest. Are you one of those who worry because you feel you must worry although you know it will not solve your problem?

Sometimes when it gets really challenging, it is tempting to encroach on investments to meet current needs. Insurance policies tend to be a ready source of funds in such circumstances. The income earned on them is generally tax-free. There are other sources of tax-free income, such as some unit trust products and long-term savings accounts.

If circumstances are such that principal or income has to be encroached upon, let it first be for those instruments that do not generate tax-free income.

Maintain your investment programme. Now is not the time to panic. Avoid selling for the sake of selling. If possible, seize opportunities to invest in assets that are undervalued.

When financial challenges emerge, it is also tempting to encroach upon savings. If it cannot be avoided, treat the funds as a loan from yourself and repay it as you are able when the situation improves.

Maintain your risk-management programme; do all you can to retain your insurance coverage: life, health, disability, and property. Consider the cost of medical care and of replacing assets lost to various perils and theft. Make use of your benefits under the National Insurance Scheme, the National Health Fund, the Jamaica Drug for the Elderly Programme, and NI Gold. They may be small, but they add up.

None of us has the slightest clue about when the present crisis will pass, but it will. Some people are better equipped to survive financially than others. For some, a financial makeover is the best way forward.

■ Oran A. Hall, principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and counsel. finviser.jm@gmail.com