As these uncertain times persist, we often find ourselves having good days and bad days, the latter being riddled with emotions of feeling overwhelmed and worried, especially in terms of our finances and savings. Whatever your situation may be, there are always aspects of your financial life that you can work on and better for your own unique situation. Here are five actionable pieces of advice you can apply to your financial life throughout this challenging period.
5 Financial Planning Tips Amid Covid-19
- Don’t lose sight of your budget. During these unusual and trying times, we may find ourselves forgetting about our budgets, spending an egregious amount of time perusing Amazon and the likes, adding to our virtual shopping carts and hitting checkout more often than we would like to admit. Sure, there are absolutely certain necessities, but make sure you track these transactions and keep an eye on what your credit card bills are amounting to each month. With the immediate and, arguably, long-term futures remaining cloudy with a great deal of uncertainty for many businesses, it is prudent to ensure you keep your essential expenses top-of-mind and make those vital overheads your top financial priorities. As we like to say: Act like a business and cut unnecessary expenses!
- Cushion your emergency savings. Times like these remind us how important emergency savings are. In our Hierarchy of Financial Needs, the framework my colleagues and I have created for our financial planning and financial wellness programs, having an adequate emergency savings fund is the first step to work towards in your financial life. We recommend aiming to build your emergency fund up to cover at least three to six months’ worth of expenses, and given the ambiguity surrounding the return to normalcy, it is prudent to cushion your emergency savings fund as much as you can, aiming for funds sufficient to cover expenses for six months to a year. In line with my first piece of advice, evaluate your budget and see where you are conserving cash – for example, you have most likely been spending less on gas and transportation – and redirect these savings directly to your emergency savings fund. Every bit helps and adds up over time.
- Have a mortgage? Consider refinancing it. To alleviate the financial pressures the coronavirus pandemic has placed on the U.S. economy, the Federal Reserve has cut interest rates, and recently, on June 10, the Fed said that it plans to hold its benchmark interest rate near zero through 2022 to help the economy recover from the COVID-19 crisis. With interest rates at this all-time low, anyone with a mortgage should consider refinancing, which involves revising the interest rate, payment schedule, and terms of your previous agreement. Refinancing a loan contract during this low-interest rate environment can translate into significant savings on your debt payments. Additionally, consider shortening the term of your loan to pay it off faster and save more money. Refinancing can also apply to high-interest debt like credit card debt. Look for a balance-transfer credit card that allows you to take advantage of a lower interest rate on any credit card debt you have.
- Stick to your investments; invest more if you can. Panicking and selling amidst this market volatility merely locks in losses from the market selloff we have witnessed as a result of the COVID-19 pandemic. For the long-term investor, nothing has changed. Market history has shown us that the markets will always bounce back, often stronger than its comparative before, and we have already seen glimpses of such behavior throughout these past two months. Although the market will most likely continue to experience volatility for the foreseeable future, remember that the downward spikes pose attractive entry points for new investments. If you are able to, consider upping your contributions to your retirement and other investment accounts, so you can further reap the benefits of the rebound when it occurs.
- Keep charities and your local communities in mind. If you are in a fortunate enough position to support your favorite charities and surrounding communities each year, this year, considering making your typical year-end annual contribution now or lumping together your usual monthly payments into one larger payment that you can donate at this time to help these organizations when they need the support the most. Throughout these past few months, we have helped several clients open and fund donor-advised funds (DAFs) to front-load their 2020 gifting, as our clients have realized that the charities they support are in urgent need of donations now. An additional plus: DAFs offer tax advantages that allow you to also benefit from your philanthropy.
Final Points
The economic downturn and market volatility triggered by the COVID-19 pandemic have had significant impacts on all of our finances, but it is important to remember that we can also use these situations to grow more in tune with our financial lives to find ways to create opportunities for ourselves. First and foremost, take care of yourself and your loved ones, and know that there are resources for you to leverage to help you in any and all ways you need.
Questions and/or interested in how this applies to your financial life?
Email us here: info@afsfinancialgroup.com.