Every crisis, at the time, may feel insurmountable, especially when finances are at stake. If you find yourself in a bind now, take the chance to build in some good habits and work towards your financial fitness. With planning, newly adopted habits can carry you through the ‘new normal.’ A better relationship with your money
can lead to more choices, less stress, and overall better quality of life.

1. Mind Your Cash Flow

Positive cash flow is a crucial indicator of financial health and independence. During an economic downturn, unexpected circumstances like job losses or pay cuts can affect your cash flow. Look at your daily spending for the last three months and analyze your spending pattern. If you do not track your expenses regularly, start with
the line items on your monthly bank and credit card statements and categorize these by priority. See which costs you can cut or minimize right away. This short-term financial minimalist approach can help you manage your money better.

Plan a spending budget – An old budgeting hack is to practice a ‘minimum spend’ month or week. That is when you only buy pre-agreed essentials to save money and pay down debt or save for a goal. With limited lifestyle needs as restrictions still apply in many markets, people can use this time as a proxy ‘minimum spend’ period as they significantly cut back on discretionary items, entertainment, and travel. Allocate these savings for child care or medical insurance.

Tailor your lifestyle –This is an excellent time to reassess what truly enhances your quality of life. Once social restrictions ease and the economy opens up, you can make deliberate decisions on what luxuries or extras you can afford. Do mindful spending and dedicate the rest to savings or debt repayment. With better control of your spending, you will have more freedom and options to better prepare for future uncertainties.

Cut costs deeper – If you are currently in a situation with no or reduced income, you can go further than just cutting your variable expenses, and analyze your fixed costs too. In the current situation, there may be restrictions on moving houses or changing providers. However, there are still opportunities such as money spent on inflated fees, vehicles, or services you are not actually using. Think about it as financial spring cleaning. Every year, analyze your expenses and cut costs where needed.

2. Build Your Net Worth

Your net worth is the difference between the value of what you own - your house, retirement funds, investment accounts, checking account balance, savings, and other income -minus liabilities such as mortgage, credit card debt and personal loans.

Net worth is an important number to keep in mind as it can help you determine just how much your debt can affect your future wealth, as well as highlight the areas you should focus on before retirement. By stabilizing the cash flow, the goal is to reduce your liabilities gradually.

Know and prioritize your debt – Debt generally creates expenses as opposed to assets that create income. Debt that is manageable in normal circumstances can have a crippling effect ina volatile market, especially if one loses the majority of their income. If you owe money and have monthly payments going out, try to optimize your debt portfolio by paying off your debt with the highest interest first.

Common debt for most people will be credit cards, vehicle installment, or renovation loans. In the current conditions, many relief rates are being offered on debts and perhaps exploring if the relief rates provided could help you take the pressure off your cash flow. If you cannot make payments, communicate with your provider as soon as possible.

However, still, be mindful and prioritize your debt wisely. For example, debt such as mortgages tends to be more acceptable because of their lower interest rates. With this, while paying off your monthly mortgage payments regularly, you could spare your additional funds elsewhere, such as investment. Refinancing could also be an option where it makes sense.

Sweat your assets – Generally, your assets can provide a steady income flow. Property rental or investment can help reduce your cash outflows on home rental and improve your cash inflows that could be allocated elsewhere, such as savings or more investment. Assets can provide greater flexibility, especially in times of a crisis such as an illness, job loss, or a global pandemic. 

Build an emergency fund – This should ideally include cash or a cash equivalent that you can draw upon to meet your basic expenses for at least six months. Often overlooked as a benign and boring financial planning tool, it is a safety net that can provide great peace of mind –helping reduce stress, buffer spiraling debt, and empower you to take on new opportunities.

3. Stay positive: Health is the Ultimate Wealth

People do not make the best decisions while under stress. Also, stress negatively impacts health, perhaps our most important advantage in the current times. 

Health protection – Illness and related loss of income can happen to anyone. However, being prepared is critical. It is wise to know where you stand in terms of entitlements for lump sums and income from various sources in case of a health emergency.

Ensure you have adequate life insurance cover to maintain a good quality of life for your dependents or to cover liabilities in the future. The premium for term insurance is lower when you buy it at a younger age, and it remains constant for the entire tenure.

The current crisis has also brought home the need for sufficient health insurance. If you only have your company’s health policy, consider separate coverage for yourself and your family members. Remember that in case of a job loss, you will lose the group cover, exposing everyone.

Personal health is the most important asset – A crisis like this can help us focus on what is most important. Start focusing on a healthy way of living. Reprioritize your health goals, making mindful choices around diet, exercise, meditation and even, new hobbies.

Investing in your health will offer you some of the best returns. Life during an economic disruption can be worrisome even if you are fortunate enough to have a job or a steady source of income. But even in a crisis, it is within our power to fortify our financial, physical, and mental well-being to stay resilient and ready for what’s to come.

Verawaty Zhao is the head of wealth management at Bank HSBC Indonesia