RETHINK MONEY
There are several ways to get in a better position
Assess your spending and saving to get in a better position.
The pandemic swept many people into uncharted financial territory. Millions lost their jobs and loved ones they relied on. Others endured more than a year of isolation and uncertainty, working from home or on the front lines.
Whether your bank account bulged or dwindled during the long months of lockdown, now is the time to take stock of your financial situation and decide your next steps.
In a survey from the Pew Research Center released in March, 30 percent said their situation had improved, 21 percent said it had gotten worse, and 49 percent of adults said their family’s financial situation was about the same as it was a year ago.
Depending on your financial situation and your priorities, what you do now will vary. But there are several ways to put yourself in a better position financially for whatever comes next.
First, don’t rush it.
The trauma of the past year has been extraordinary, and for many people, their initial impulse may be to plunge in and make travel plans and purchases to make up for lost time.
But if there was ever a time to reevaluate priorities and align your spending and saving behaviors with your values, that time is now, experts say. Is your career on the right track? Do you like where you live?
The pandemic may have helped people think about saving differently, focusing on what brings them joy, said Inga Timmerman, a certified financial planner and associate professor of finance at California State University, Northridge.
If you’re thinking of switching careers, starting your own business or making some other major life change, there may be a financial cost, at least in the short term. At a minimum, “you should have a spreadsheet with the bills and things you need to have covered regardless of how the business or side hustle does,” Timmerman said.
Assess three things
Whether you’re dreaming of turning your pandemic side hustle into a new career and need to determine how to pay for it, or you simply want to feel you’re on firm financial footing, planners say there are generally three major financial areas to evaluate first.
“If someone has an emergency fund, no high-interest debt and is saving a decent amount for retirement, they’re in a good position to make big changes,” said Brian Walsh, senior manager of financial planning at SoFi, an online lending startup.
• Build up an emergency fund. In the past, planners have generally recommended that people have three to six months of expenses in an emergency savings fund to carry them through tough times. Some now suggest that fund should be able to keep you afloat for up to a year.
“Now, the advice is even more conservative,” said Dan Herron, a certified financial planner and co-founder of Elemental Wealth Advisors in San Luis Obispo, Calif.
• Reduce credit card debt. Though credit card balances declined sharply during the pandemic, thanks in part to fewer buying opportunities as people hunkered down at home, the average household credit card balance still tops $8,000, according to a study by WalletHub.
If you are carrying a high credit card balance, now is a good time to consolidate that debt by transferring balances or signing on with a debt consolidation service that will allow you to make a single payment monthly. Interest rates are as low now as they’re likely to be for the next few years, said Tony Molina, a certified public accountant and senior product specialist manager at Wealthfront, an online investment advisory company.
• Save for retirement. If you’re one of the lucky ones who increased your savings during the pandemic, don’t stop now.
Earmarking some of that money for retirement can be a good strategy. Depending on how close you are to retirement and whether your projected savings will meet your expected needs, your approach may vary. A financial adviser can help you figure out the best plan for you.
Spend wisely
One way to increase savings is to reduce spending that may have ballooned during the long months of isolation. Do you really still need subscriptions to every streaming channel on your TV? Maybe it’s time to cut back on virtual yoga classes now that your gym has opened again or to cancel your food delivery services.
Protect yourself, family
The pandemic brought into sharp relief the fragility and unpredictability of life, and provided an object lesson in the importance of estate planning.
In addition to a will, your plan should include documents that detail your wishes for medical treatment and decision-making if you’re unable to communicate that yourself. Depending on the state, these may be called living wills, health care proxies or medical directives.