The financial analysis and fallout of the current COVID-19 pandemic are changing almost faster than the knowledge about the virus itself. With such an unsteady foundation, how are we to implement financial strategies that are effective and reliable? Here are a few things experts are touting as go-to strategies to weather the current crisis.
Smart Budgeting
Budgeting has always been important to any financial strategy, but now more than ever, budgeting needs to be high on the priority list when planning for the future. With so much up in the air, it’s important to take control of what you can. And, contrary to what the spending habits of the average American tell us, you can control where you spend your money and what you spend it on.
Don’t Spend Money on Unused Things
There are a few things you may have previously spent money on that will need to be removed from your budget plan. For example, if you have a gym membership, and your gym is closed, you shouldn’t be paying that fee. Likewise, if your private pool never opened and is still withdrawing money from your account, you should probably cancel it. Businesses are hurting all over the country, and many times are short-staffed. It is possible that accounts are still being charged that shouldn’t so be sure to check on all of your automatic withdrawals.
Move Money Around Where Appropriate
In these unprecedented times, the budget might (and probably should) look different from the times of old. If you find you aren’t eating out as much, you might want to re-appropriate that money into a grocery line item, since that would likely mean you are making most of your meals at home. If you find your gas tank is staying full for more than a week, because your morning commute was commuted (no pun intended) from twenty miles to twenty feet, it might be wise to stick the extra money in savings account for a rainy day. This brings us to our next important strategic move.
Build an Emergency Fund
It’s hard to imagine building an emergency fund in the midst of an emergency, but as most financial advisors will attest to, there is always a way to save a little – and a little becomes a lot with the right amount of consistency. The strategy of doing this sounds simple but tends to elude a lot of people. It looks like this: once you have re-structured your budget, find those things that are truly non-essential, and save that money in an emergency fund. There may be some non-essential online shopping that has happened in your home as a result of everything else in the world closing down for a time – now is a good opportunity to curb that spending and save it instead.
How Much Should You Save?
There are a couple of factors that go into figuring how much money should be kept in an emergency fund, namely the stability of your income and the bills you need to pay. Most experts recommend an emergency fund that will pay the bills for 3-6 months, but it may be smart to double that while navigating the COVID-19 pandemic. If you work on commission or are self-employed, it is better to inch toward the higher end of the emergency fund range. If you are a two-income family, with stable salaries in essential businesses, then the lower end of that scale should suffice.
Why Save?
Emergency funds are called such for a reason. They are not a fun investment, nor are they there to reward you later with a vacation or a new car (although, funds for these things are helpful and should make it into your budgeting efforts if they are goals of yours.) Instead, emergency funds are there to provide peace of mind and stability if the financial reliability of your current life situation takes a turn for the worse. Think of it as medical insurance – you might never need it, but it’s worth its weight in gold when you do.
Look at Refinancing Your Mortgage
No one likes paying any more interest than they have to, and now is the perfect time to reduce this payout. The Federal Reserve has lowered interest rates, making it a prime time to refinance your mortgage if you have one. Along with reducing monthly payments, you may be able to shorten the length of your loan. Condensing your mortgage from the twenty years you have left to fifteen is a smart way to save money and free up cash in the long run, well after the COVID crisis has come and gone.
Consolidate Debt
Another reason refinancing might make sense, along with those listed above, is the consolidation of debt. During a refinance, it is possible to turn a portion of your house equity into cash, which would allow you to pay off debt that is accruing higher interest. Credit cards, for example, have a much higher interest rate than a mortgage. If you take some cash from your home’s equity and use it to pay off the credit card debt, you can then merge that debt with your mortgage, which will carry an interest rate that is a fraction of that of credit card companies.
Other Ways to Consolidate Debt
Debt can be consolidated via other methods if you are not in a position to refinance a mortgage. The smartest way to achieve this is to pay off the small debts first and then begin to put that amount into paying off a larger debt. For example, if you have two credit cards, and one has a $50 monthly payment, and one has a $200 monthly payment, pay the minimum on the higher payment and work harder toward paying off the $50 per month card. Then, when that debt is paid off, take that $50 and add it to the $200 bill, making your payment $250 per month. This is a smart method that works toward consolidating and eliminating debt, all in the same financial strategy.
If you find yourself in a precarious financial position with more debt than you can consolidate on your own, there are credit consolidation experts who can walk you through other options. No matter the route you choose, the fact remains that consolidating debt creates a more predictable and stable future, which is important as we navigate COVID-19 and its economic fallout.
Try to Donate Where You Can
Financial strategies aside, there are likely people worse off than you during this trying season. The fact is, COVID-19 is a worldwide catastrophe that is affecting millions. Whether it be a food bank or a school teacher in need of extra cleaning supplies, any amount you can give that helps alleviate someone else’s burden is a win. Don’t forget to write off any donations that are tax-deductible…your pocketbook will thank you come next April.
Finally…
Financial strategies shift with the ages, and it seems as though there is always a new guru with “tried and true” methods that will create financial stability for you and your family. Right now, with the financial foundation shifting beneath our feet every day, it may be wise to adhere to these basic principles in order to achieve long-lasting predictability and stability in your finances.