By Lara Pickford-Gordon
The outlook in many aspects of life is uncertain with COVID-19, but personal finance is one area that cannot be left to chance. How do we weather this period without ending up in dire financial straits?
For those not working because of business closures from COVID-19 restrictions, Financial Counsellor, Consumer and Management Advisory Services Limited, Patrick Lewis advised there can be prospects to generate income.
An analysis of employment opportunities arising from the fallout can identify gaps in the needs of the country’s service requirements. “These affected workers should seek to become entrepreneurs. They can offer complete packages for bill payment, grocery/market shopping and delivery services,” he said.
This service can be offered to the elderly and other categories of persons and can be cultivated into a lucrative business. Other possible areas of employment include childcare and geriatric care.
Short-term programmes of assistance offered by the State through the Ministry of Social Development and Family Services can be used in the interim. Lewis said the closure of bars, restaurants and popular liming spots means a reduction in spending on entertainment and travel expenses as people are working from home. “It is advisable whatever is saved during this period could be used to offset debts or create an emergency fund for unforeseen expenses,” he said.
The government has initiated financial measures to cushion the impact of COVID-19 on workers. Some of the measures include asking the banks to reduce interest on credit cards and consumer loans. The initiatives mentioned can assist a great number of public and private sector workers. Lewis however said those employed in stores and factories “would hardly reap rewards from this measure”.
Workers can capitalise on the reduction in borrowing rate from nine per cent to six per cent to reduce their monthly expenses. Lewis explained, “for instance, workers with a heavy loan portfolio can renegotiate these loans which were gotten at a higher interest rate. They can seek a loan consolidation, that is, bringing all your debts and loans under one umbrella”.
He said by choosing this method, an old payment can be reduced substantially given the term and interest of the loan. The savings can be used to either balance their budget or develop a saving plan.
Lewis said the use of credit cards is a major factor in the management of money. He stressed it should be used as an emergency fund. Most times it is used for the wrong reason, like the purchase of non-essential items.
“A credit card is an approved loan that can be drawn down at any time without being face to face with a loan officer”. In addition, every time the card is drawn down or used, there is a 45 days cycle for repayment before interest is charged. Interest rate may range between 24–27 per cent annually.
“It must be managed carefully. Interest rate on the credit card anticipated to be reduced from 24 per cent to 14 per cent will also show a reduction in monthly expenses”.
Mortgages and loans
Lewis said a deferral of mortgage and loan payments does not mean an exemption of payment has been given but rather payment is being put off to a date in the future. “The result of this measure will put much needed cash at the end of the month to balance the budget and bring a measure of relief in the month it was given”.
He cautioned that since deferral indicates one month, these funds should be managed or spent carefully. “No luxury items or entertainment, strictly necessities”.
Lewis said “suspension” of loan and mortgage payments connotates a longer period, three months or six months; more cash will be available to manage the present financial situation. Even with a deferral of payments on loans and mortgages, monthly interest payments continue.
“The repayment of that deferral can be costly based on the interest and repayment time. It is advisable if it is difficult to repay in a lumpsum, a small instalment can be added together with the regular payment to liquidate the debt.” A deferral should not be taken if the payments to loans and mortgages can be carried and finances managed responsibly.