The COVID-19 pandemic has taken its toll not only on public health but on individual finances as well. Many people are feeling the financial impact or are worried about what the future may bring, including those who have lost work hours, were temporarily furloughed or are still out of work. Even for people whose incomes remain intact, with the virus still lingering, economic uncertainty remains.
Whatever your personal situation, now is a good time to evaluate and prioritize budgeting and saving tactics that can safeguard your finances in both the short term and for the future.
The following are some best practices that can help promote and improve your financial health.
Manage your budget for the now.
Spending habits have changed for many families since the beginning of the pandemic. In fact, 32% of U.S. consumers say they are spending less or trying to cut back, according to the Experian Consumer Sentiment Index. Here’s what you can do:
Figure out your cash flow. Your income may have changed depending on your employment status, which means that some recalculating may be in order. Likewise, list out your current expenses, removing those that are on hold due to the pandemic. Whether it’s fewer opportunities to travel, no concerts to attend, or no commuting or daycare costs, it’s likely that you may actually have been spending less on certain things during lockdown. On the other hand, you may be spending more in other categories (like groceries), since everyone is home.
Watch your spending. It’s important to be extra frugal, especially if you have reduced income. Move away from the panic shopping that you might have done during the early days of the pandemic, and make grocery lists based on proactive planning. Other ways to save: Consider cutting back on subscriptions you don’t use often, not overindulging in take-out or online shopping, and stamping out other sneaky expenses that eat away at your budget.
Redirect longer-term savings to meet your immediate needs. If you’re coming up short, you could temporarily lower the amount you’re putting into retirement savings or reduce the frequency of 529 contributions so you have more cash on hand. You could also tap into emergency reserves if you have them. Just be sure to return to your regular budget and replenish savings once things go back to normal.
Use found money to build up your emergency fund. If you’ve been fortunate to maintain your income, reallocate found money (which is excess cash you discover while budgeting, such as stimulus checks) to emergency savings. The rule of thumb is to build up to three to six months of living expenses, but if you think your future income stream may be in jeopardy, it may be appropriate to increase this amount. Emergency funds should kept liquid; in many cases, a high-yield savings account is an appropriate option for holding these funds.
Look for opportunities.
Once you have a handle on your incoming and outgoing cash, you can take a step back and review your financial status.
Take advantage of lower interest rates. One good thing to come out of the pandemic has been historically low rates, making it a good time to refinance existing debt. For some, it might also be worth consolidating high-interest debt into a personal loan or personal line of credit. Work with a professional who can help you crunch the numbers to see if you’d benefit from these opportunities by lowering your monthly bills and giving you financial flexibility for your other goals.
Boost your retirement accounts. For those who are coming out ahead because of fewer expenses, use the opportunity to max out your 401(k) and IRA contributions. This is a prudent way to save for your retirement goals by taking advantage of tax-deferred growth within these accounts. In addition, as the market fluctuates, have regular conversations with your financial advisor to make sure your portfolio is aligned with your goals.
Keep tabs on your progress and make adjustments accordingly.
Whether the pandemic continues or things gradually go back to normal, be sure to look over your budget each month. Keep making adjustments as income and expenses change.
Reach out to your Eagle Invest advisor or First Republic banker for additional guidance in helping you reach your financial goals.
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