We are living in unprecedented times, and the year that brought us so many pains is actually shaping up to be a surprisingly good year for investors. The stock market is doing better; the S&P 500 is hovering near an all-time high and on a good track to average returns for 2020, in the midst of a bull market. Despite the market doing well, the pandemic has strained many people, especially those who have lost their jobs. It is crucial to understand how to budget during a crisis, and as such, we spoke to Kara Duffy who shares some crisis budgeting tips with us.
Kara Duffy is an accomplished strategic leader with over 20 years of product, merchandising operations, organizational, customer relations, project management, and business planning experience. She has helped produce successful results for both large global brands (Quicksilver, Reebok, Puma to name a few) and local start-ups servicing the sport, fashion, action sports, non-profit, beauty, marketing, and food service industry.
Overall, what advice do you have for women during this time?
Kara: Focus on 4 P’s of Pandemic: Pause, Prioritize, Prune and Pivot. This applies to your business, your finances, and truly all parts of your life. This is the perfect time to take a step back and evaluate what you’re up to and how what you’re doing aligns with your goals. We all have an opportunity to reset and refocus.
Kara advises everyone to spend 20% of the time on defense- reducing their budget, asking for loans, etc., and 80% on offense. It is easy to get stuck and overwhelmed in how to protect yourself financially, but all power is being proactive to bring in new income and sales. How do you bring in more income now? How do you open up new income streams? How can you offer your services or product or your skills in new ways?
Studies have shown that women are more likely than men to say they have difficulty making ends meets, or dealing with some emergency expenses or even saving for retirement. To better manage your finances during hard economic times, you need to create and cultivate a new mindset to feel excited and not entirely exhausted by money issues. Additionally, you may need to reverse engineer how to break down big money goals into small and manageable money goals. Lastly, you need to use your time, energy and money more efficiently.
What are some of your top tips?
Kara: The biggest tip from our crisis Budgeting Class is to know the reality of your money. How much do you have in savings? What is your income? What are all of your expenses? Put aside, or even throw away, ego, shame, or any frustration you have about “what you should be doing” and simply get clear on what is actually true about you and your money. Knowledge is power and when you know what’s so with your finances you can then take actions that put you back in charge.
The second tip is about how to prioritize your expenses. When we’re in crisis Budget Mode, I recommend prioritizing 1) food, 2) transportation (care payment, car insurance, and gas), 3) health insurance, 4) housing and utilities. After these items prioritize as it applies to you.
The third tip for a crisis is to be focused on stockpiling cash. How far can your cash on hand get you? How many months can it cover, one month? Three months? If you do not have enough cash to cover your bills for the next one or three, reach out to all your bills to defer, push out, discount or waive any expenses you can for the 1–3 months.
How much money should someone have in emergency saving?
Kara: If you live where the cost of living is higher, such as in a city or a coastal region, I recommend $5,000 at minimum. Ideally, you should have enough money to cover 3–6 months of your expenses. I also recommend people to shoot for having 12 months of expenses saved. Having 6 months to a year of savings gives you freedom- even if only in mindset and relief, that is really powerful.
What are some easy hacks to mitigate financial stress?
Kara: Always pay yourself first. Always tell your money where it’s going to go. When money comes always at least take the first 10% and put it into your savings. If you tithe, take the second 10% and put it into your savings. Even during a crisis, make sure that you are still putting money aside. It is the lack of savings that gets everyone into financial trouble.
Also, have a plan before money comes your way about where it should go. Is this money to cover your already prioritized bills? Is this money for your travel fund? Money and time are similar in many ways including in that if you don’t tell it where to go, it disappears.