At this point, the Russian-Ukraine war might have little to no effect on your finances but the recent news might just affect your household budget.
News reports have come out that Russia has started to decrease the gas export they send out through Nord Stream 1 pipeline. This line starts from Vyborg in Russia and cuts across the Baltic Sea traversing Estonia, Latvia, Lithuania, Sweden, and Poland before landing in Greifswald in Germany. This is one of the longest gas pipelines that bring Russian gas to Europe.
But as CNN reported, Gazprom announced it is cutting the supply to Germany to just 20% of its capacity. This caused some serious concern about gas shortages especially as European Union is already heading into another cold winter. This could lead to challenging gas shortages as the questions are raised if the EU could still put in some reserves with the gas pipeline delivering only a portion of what it used to bring.
BBC is saying that this is how Russia is using its gas products as a political weapon against the EU. Speculations are that it is in retaliation for aiding Ukraine with the current conflict. It is important to note that prior to the war, more than half of Germany’s gas needs came from Russia through the pipeline. This has now all changed. What used to be €37 per megawatt hour same time last year is now €204.85 per megawatt hour.
American and Europe relationship
With this developing news, how does it exactly affect your household budget?
Policy Trade shares that the EU and the US enjoy one of the biggest investment and bilateral trade relationships on the globe. This is beneficial to both parties but at the same time, it also means that there is a big chance that each party will be impacted by any negative impacts on either side. After all, economies on both sides comprise about 40% of global GDP.
Possible effects on the EU
The situation is not ideal, especially with the winter coming in. Other effects of this development could also lead to the following scenarios:
- Higher gas costs – lower supply and huge demand normally leads to a jump in unit cost for any goods or services
- Confidence shock – once prices for gas skyrockets and start to ripple out to other consumer goods, people might begin to lose confidence in the economy and begin to question their earning power
- Possible furloughs – since gas-intensive industries would find it necessary to scale down operations, there is a chance that the companies would begin to let some workers go.
What does this mean for regular US household consumers?
Although the gas conflict stemming from the reduced output of the pipeline from Russia to Germany might have minimal effect on US consumers, it pays to note that our economies are closely connected with each other. What this means is the possibility of slight movements in trade prices which potentially impact industries in the country.
Managing your finances better
With all the developments happening all over from the health pandemic to the Russia-Ukraine crisis all the way to the gas pipeline issue, how do you shield your finances? Will all these affect your household budget? Here are a few things to always keep in mind when managing money matters in the middle of global developments.
Your household budget is fluid
It is best to remember that your household budget is not a one-and-done type of financial tool. Any changes in your finances or even global economic developments should reflect in your budget. This will help you stay ahead of potential problems. If you added a monthly recurring expense to your credit card, you need to add this to your payments section in your budget.
If your income has any changes whether it became bigger or smaller, you have to make sure that this is also reflected in your household budget. This will allow you to set aside more every month or adjust some expenses so you are still able to cover everything with your income. If you are foreseeing potential industry problems, setting aside a bigger amount for emergencies could help you navigate through tough times.
As explained in the previous point, setting aside some funds for emergencies is crucial in getting you through challenging times. This is one of the biggest financial lessons a lot of people came to terms with during the pandemic. As the health crisis reared its ugly head, many people found themselves struggling to keep their jobs.
Some were fortunate enough to be able to transition to a work-from-home set-up. But for others, others were either let go or put on furlough. One thing was certain though when this unforeseen situation dragged on for months, a lot of people had to rely on their emergency funds to help them make ends meet.
Diversify your income
It is challenging to try and create a wall around your finances so that whatever negative issues do not affect your household budget. One of the ways to help you do this is to find a way to diversify the income that is coming into your budget. More often than not, people rely solely on their day job for all their financial needs.
But much like what happened when the health crisis happened and people got laid off from their day job, they suddenly lost all the income that comes into their budget. At this point, they now have to rely on their savings, emergency fund, and even their credit line for everyday expenses. From that moment, all of their money was going out and nothing was coming in.
Tips to earn on the side
It is quite challenging to diversify your income but not totally impossible. Here are a few great ways to get started. These could play a part so global economic problems do not affect your household budget that much.
- Start with something you are good at – this is probably one of the first ideas that would come to mind when looking for an alternative source of income. Say you are a great programmer, you can take up side gigs related to that industry. Of course, you need to make sure that there is no conflict with your current day job when you do that.
- Look for income-generating hobbies – one other option you have when you looking for a side hustle is looking at your hobbies and interests to check if there are income opportunities you can take advantage of. If your hobby revolves around cooking or baking, then offer your baked products to family and friends or even your community. If you love taking photographs, approach schools and even businesses that could be looking for a part-time photographer. The good thing about this is that you get to spend time doing what you like and get paid for it.
- Work from home – a lot of times, your day job is already tiring as it is, and adding a second job could prove to be exhausting. If this is the case, why not try getting a side hustle which you can all do online? Better if it can be aligned with your hobby as well. If not, there are plenty of options. You can be a writer, social media manager, or even a researcher which you can all accomplish online at home.
It is difficult to try and shield your finances so economic problems will not affect your household budget but there are ways to manage the situation. And yes, the situation in Russia and the news about the gas pipeline is serious but there are actions you can take now so your finances are protected.