These are David Manafo’s personal views on financial margins. He is not an accredited financial expert and strongly encourages that you reach out to your financial planner for in-depth advice.
There is no doubt many of us are thinking about the state of our income right now. With COVID-19 wreaking havoc on our economy and many people temporarily (hopefully) on leave or E.I., we’ll all be looking for some money under our pillow. Who wouldn’t love to go back in time one or two years and have started an emergency fund? Or disciplined themselves to cut unnecessary baggage from their monthly expenses? Or perhaps create multiple automatic saving transfers toward future short- or mid-term goals?
As the saying goes, with lots of valuable things we could have started years ago, the best time to make a budget was 20 years ago, the next best time is today. So stay positive!
As I begin to talk to people and read stories about the economic impact of our current crisis, I believe the first thing many could consider – whether your job is at risk or not – is to create margin in your budget. Margin is exactly what you think it is, SPACE to give you room or flexibility when things get tight. Think of the margin around a page when you’re reading. There is always some space!
Budgets need margin too, always, but especially when potential economic harm creeps up. Here are a few things you might consider:
FIND YOUR NON-ESSENTIALS
This is anything in your budget you could live without if you had to.
- Streaming services;
- Gym membership;
- Weight loss programs;
- Insurances you will never use. (This is tricky, but some people have 4-5 insurances they really don’t need beyond life, health, home, and car insurance.)
Of course, if things would get really bad you would change the shampoo you buy, hold off on a haircut, buy cheaper products, or eat a little less salmon.
HOLD OFF ON THAT NEXT BIG PURCHASE
Have you been saving for a vacation, new car or outfit? Just wait. What’s worse than not having those things is getting them and then realizing you don’t have money for the essentials or you go into debt because of them without a higher income to pay them off quick enough.
REORDER YOUR BUDGET TOWARDS SAVINGS, NOT SPENDING
Too many of us, if we even have a budget, start with spending in mind. Here is a model I’ve worked with for years and now tweaking for our cautious times.
10-20-70 (Give, Save, Spend)
For every $100 you make: Start with generosity. Give $10 away, then save $20 for long- and short-term goals. (e.g. your pension being long term; vacation or special purchase could be a short-term goal), then spend the remaining $70 according to your priorities and lifestyle.
What I’ll suggest next might seem extreme for you, or your income might not be able to handle. Why not reorder your budget to a 10-30-60 split? What?!?
The 10-30-60 Split
The difference is that you drastically save more and spend less in this season. Taking $30 from your $100 income and put into a different account (or various accounts). Keep living generously (I’ll explain why below). Live off the remaining 60%. (You can attempt something more radical if you think it will become necessary for a period of time.) If it helps, think of saving as “delayed” spending. You will spend it one day – on a car repair, new dress, weekend away, the home renovation you had in mind, or if needed – an emergency!
Here’s the beauty of making this shift now rather than later.
If you need the money because your income drops you’ll already be living on less and ready for it!
If your income isn’t affected over the next few months, you’ll have tons of options:
- A healthier emergency fund;
- Money to invest in a low stock market;
- The ability to impact a great charity or individual in a significant way;
- Vacation, renovation, new coffee machine – whatever!
You’ll also notice that your sense of contentment and peace will begin to grow. Margin has the power to create space – which decreases stress!
GO FOR IT
Before you decide this is impossible for you, at least give it a try. Get off Facebook or Instagram, give Netflix a break. Get a blank sheet of paper or a fresh Excel doc with the info you need in front of you. Take an hour on your own or with a spouse. Do this with a friend over FaceTime or Skype. See what you come up with.
Remember to be clear on your goal. This is to CREATE MARGIN IN YOUR BUDGET so you have the flexibility for an unforeseen emergency or lower income in the short term.
Finally, in case you were shocked by the 10% giving portion of my budget, let me explain. I believe life is qualitatively better when we hold on to less stuff. Life becomes more fun and meaningful when we live generously rather than hoarding or accumulating. Generosity fuels an abundance mentality while killing a scarcity mentality. I can’t take credit for this. My worldview has been influenced by the writings of Jesus and Christianity. He believed that one worries a lot less when we stop serving money and trust in something even greater (you can read his words directly in here).
Be encouraged. Keep looking up.
(After you read my layman’s take on this, go research what the experts say.)