If you were one of the lucky ones whose career was uninterrupted by the coronavirus pandemic, your finances probably look impressive right now. Unfortunately, this is not the case for a large percentage of Americans, many of whom suffered job losses or a significant reduction in income over the past year.
According to a recent Pew Research Center poll, 10% of Americans say their finances will never entirely be the same as they were before the COVID-19 public health crisis. The pandemic impacted young Americans’ financial plans, with many millennials and Generation Z twice as likely to postpone a financial milestone during the pandemic.
Suffice it to say, it has been a tough time for households nationwide. Although the U.S. economy is on the path to recovery, there are other factors that could seriously jeopardize everyone’s finances, namely, inflation. Everything is going up simultaneously, from food prices to energy costs, to real estate.
Is all hope lost? Not at all. With the right financial strategy, you can ensure that you have enough money to weather any storm and generate a comfortable nest egg for your retirement. We have compiled a guide on how to improve your financial situation with these eight tips:
1. Monitor What’s Coming in…
You work hard for the money, as the old song goes. But do you know how much exactly is going into your bank account? It is important to know the dollars and cents of your checking or savings account, from the sum of your paycheck to the earned interest on your deposits, to your stocks’ dividend returns.
This is crucial because it can keep your spending in check. Overestimating your income can lead to overspending, and that’s a bad strategy if you’re trying to save more money (see below)! If you know and regularly monitor your bank account figures, you will have a greater sense of how much you can afford for fixed and variable costs.
2. …And Monitor What’s Going Out
There are necessary expenses: mortgage/rent, utilities, car payments, telecommunications, and insurance. There are also unnecessary costs: premium cable packages, Cadillac smartphone plans, unused gym memberships, $5 morning lattes, and eating out or delivering food three times a week.
When you are not monitoring what is deposited into your accounts, you might be reckless with what is debited. It begins with the weekly trip to the movie theater, expanding into weekly dinners at a restaurant, and treating yourself to a regular wardrobe refresh…before you know it, you are running a deficit at the end of the month.
Keep tabs on what is taken out of your accounts or wallets and actively make lifestyle changes to live within your means.
3. Change How You Spend & Save Money
In the aftermath of the once-in-a-century pandemic, there has been a lot of talk about The Great Reset. Why not take the opportunity to reset your finances?
In other words, perhaps it is time to change how you spend and save money to ensure greater financial security in your household. But how? Here are several tips to reshape your funds:
- Delay instant gratification and allocate that money to your savings.
- Rein in your lifestyle inflation: as you make more money, you might be seduced into spending more money. Do not fall for this “keeping up with the Joneses” routine.
- Prioritize saving, even in an ultra-low interest rate environment.
- Create financial goals you wish to achieve and an action plan for achieving them.
- Download money management apps or speak with a financial advisor.
- Eliminate your debt as soon as possible. Be it the debt snowball or debt avalanche methods – give your debt the heave-ho.
4. Create a Budget
We have discussed the importance of knowing what is coming and what is going out. The best mechanism to guarantee better tracking of your hard-earned dollars and cents is with a budget.
You should never beat yourself up if you are off by a few bucks at the end of the month, but every financial advisor will agree that a budget is an effective game plan for your pecuniary plight, and will help limit your financial headaches.
5. Start an Emergency Fund
As you may have noticed, when it rains, it pours.
Indeed, there is always some fire to put out in your life, whether it is a broken-down car battery or a growing hole in your roof thanks to a family of pesky raccoons. Or, worse, your child needs braces and new eyeglasses…at the same time. This may be stressful because of the costs involved, but you can mitigate this mini-crisis by starting an emergency fund.
A rainy-day fund is also great for your long-term savings because you are not compelled to touch your retirement money to cover today’s unforeseen events.
6. Begin Saving Each Week or Month
Many surveys over the last year have highlighted how consumers had to delay or cut their savings contributions in response to pandemic-induced financial stresses. It is a tough decision that had to be made to ensure a roof over their head and food on the table. But now that society is returning to some semblance of normalcy, perhaps these savings goals can be reignited.
Where to begin? You can start small by saving each week or month. This can be almost guaranteed by enrolling in an automatic savings program, also known as an ASP. By automatically diverting funds into a savings or investment account on a regular basis, you do not need to push or remind yourself to make the transfer from one account to another.
7. To Invest or Not to Invest?
If you sat on the sidelines at the height of the coronavirus-induced financial crisis, you missed out on some lucrative gains in the stock market. But there are still opportunities to take advantage of for the sake of your long-term financial plans. That said, should you invest or choose to focus on saving cash?
The choice depends on your individual situation and if you possess a regular surplus in cash at the end of the month, if you have a tolerance for risk, and your degree of financial knowledge. This being said, you don’t have to know everything when you’re starting out! There are lots of great low-risk investment products aimed at beginner or passive investors.
You can always start by purchasing an index fund through an exchange-traded fund (ETF) or buying two stocks that have endured the market turmoil and maintained their dividends.
Unsure what to invest? Here are some ideas:
- iShares MSCI USA Min Vol Factor ETF (USMV)
- iShares Core High Dividend ETF (HDV)
- Walmart (WMT)
- Kroger (KR)
- World Wrestling Entertainment (WWE)
If you want to access the benefits of investing in the Dow Jones Industrial Average or S&P 500, while still enjoying the convenience of an everyday account, consider an all-in-one checking and investing account.
8. Upgrade Your Bank Account
For much of your adult life, you have utilized the same bank account. But has it been any good to you? You pay an ever-growing monthly fee, you get zero benefits, and your features are mediocre. Your cash lying dormant is costing you more than you think.
There is a solution to this problem: Upgrade your bank account. There are many options at your disposal, from earning interest even on your checking deposits to receiving free checks to ditching the monthly fee. The finance and fintech industries have done an incredible innovating the sector, offering products like all-in-one checking and investment accounts or mobile trading platforms. There are many innovative products and options available today to get your money to work harder for you.