The coronavirus pandemic has started hitting the economy, making now a perfect time to reduce your spending. Many Aussies are out of work or facing that reality in a matter of weeks or months.
As much as we love to invest in S&P/ASX 200 Index (ASX: XJO) shares, you have to get your house in order before you look to invest. Here are a few easy ways that you can trim your budget to prepare for harder times.
Review your current spending habits
If you want to reduce your spending and improve your personal finances, you should start with your current habits. The best way to do this is to download your bank statements and see where your money is going. Many Australians are shocked to discover just where their cash is going.
Reviewing your current spending has two big benefits. The first is that you get a reality check. Even if you think you’ve got your spending under control, I think you might be surprised by the day-to-day breakdown. The other big benefit is that you can then see what’s discretionary versus required spending. While your rent or mortgage is required, your Netflix subscription or fancy dinners may not be. This is key because it’s hard to reduce your spending if you don’t know what that is.
Create a budget
Once you’ve identified your discretionary spending, you can start setting a budget for yourself. Work out exactly what you need for your required spending and look to reduce your spending. If you’ve still got income coming in the door at the moment, that’s a great position to be in. Even if you don’t have an income right now, you can work out how much money is needed to live at the moment.
The great thing here is that you can set a framework to remove your own spending habits. I personally like to set up another account that automatically transfers me my spending money each week. This way I don’t get tempted to “payday splurge” and find myself short of cash later in the month.
Don’t cut back completely if you don’t have to
It can be tempting to reduce 100% of your discretionary spending. If there’s not much income coming your way, that could be sensible. But if you’re still working at the moment and can cover your expenses, you want to be able to have some fun as well. If Australia gets shut down for months on end, the occasional splurge could be good for your sanity. Work out what an acceptable spending level would be and go from there.
If you’re looking to put more money into cheap ASX 200 shares then that could also form part of your additional spending. I’m personally looking at Fortescue Metals Group Limited (ASX: FMG) shares which are looking like a bargain right now. Whichever way you do it, these simple personal finance tips will help you sort things out pretty quickly.
Times are tough, but it doesn’t have to be all doom and gloom. Putting good systems in place is the key to reducing stress and refocusing on the right things. The same goes for investing right now – it’s not a time to panic, but to look for good opportunities to improve your portfolio.
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As of 17/3/2020
Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.