A popular Warren Buffett saying goes “only when the tide goes out will you see who’s been swimming naked”. For those not familiar with it the gist of it is that investors have different approaches to the markets and will pursue their strategies. We can argue about and defend approaches all the livelong day but the true test of which approaches were working and which ones weren’t is when a crisis comes to reveal which approaches were good and which ones were not so good. The coronavirus was first confirmed in Africa in March 2020 making it two years on now. Global money week 2022’s theme “build your future, be smart about money” cannot be achieved without spending some time dwelling on the ins and outs of budgeting. What has the pandemic taught us about budgeting?

Keep your commitments to the important things

The pandemic was unexpected but the pessimists will tell you to always be prepared for some sort of tragedy. It may be personal or global but something will come along to test you. For many, their incomes took a hit or were forced to stop working completely. They had to figure out things at the moment. With a global catastrophe, people around you are more understanding but if the problem is more of a personal nature then you may not get as much understanding. When we draw up our budgets we need to be careful what we are committing to doing every month or payday. Saddling yourself with commitments and contracts for things that are not essential can hurt you when trouble does come. Try to keep commitments on the essential things and find the most flexible alternatives for everything else.

Prepare for tough times

Perhaps one of the hardest things about budgeting is preparing adequately for tough times. The human mind tends to be influenced more by current circumstances than anything else. When things are good it is very difficult to think of hard times. So people struggle to prioritise planning for tough times in good times. The emergency fund and general savings are the parts of the financial plan that suffer most because of this bias. The lesson from the pandemic for us when it comes to budgeting is that you have no idea or say when tough times can occur. Sure you can cause yourself some problems or contribute to making the effects of a problem worse but you cannot predict when the big things will come at you.  So when asked “when should I create an emergency fund or general savings fund” my answer is always as soon as you have an income.

Because they usually last longer than expected

One final lesson from the pandemic on budgeting is when it comes to planning for tough times plan long term. When the pandemic hit African shores people thought it would be with us for a few months to 1 year. The pessimists, who I agreed with, thought we would have to deal with the pandemic for at least a year and a half. Of course, both camps underestimated just how long we would have to deal with this. Cases spiking all over the world indicate a possible 5th wave. The World Health Organisation started discussions about treating covid-19 as an endemic, something we will have to live with forever. Only the most fortunate of us can create plans that will sustain us forever if things go wrong. However, we should strive to make plans that will go as long as possible. Realistically an emergency fund alone won’t do this. Yes, you can create a 3, 6, 9 or 12-month emergency fund. We also need to think about investing in the same breath. Investing in paper assets or businesses or any other avenues that can help withstand enduring tough times.