4 Tips to Rethink Your Finances in a Post-COVID World
Dear Rich Lifer,
It’s been over a year since the coronavirus pandemic began its assault on humanity — both physically and economically.
Since then, we’ve witnessed a record-breaking economic rebound fueled by government stimulus and rising vaccination rates. Businesses have reopened and with Covid restrictions lifted in most states, consumer spending has skyrocketed.
During the pandemic, many Americans used their stimulus money to increase their savings — a logical move for many who faced uncertainty due to job loss or had to take on more childcare or elderly care responsibilities. The savings rate now rests at about 14%, which is still double the pre-pandemic rate.
These saving habits became the norm for many during the pandemic, but now that the economy is reopening, Americans are spending money on activities that are finally available, including traveling, dining out, and entertainment.
The desire to go back out in the world and regain a sense of normalcy is completely understandable, but you’ll want to make sure you have a spending plan before you empty your wallet.
So today, we wanted to present you with some tips for preparing your finances so you can enjoy the reopened world without emptying your wallet.
Redo Your Budget
Now that the economy is reopening, it’s a perfect time to review your budget.
Shelly-Ann Eweka, a senior director of financial planning at TIAA, advises revisiting older bank and credit card statements, retirement and investment accounts and your monthly bills and expenses.
Many people have had changes in employment over the past year, so take stock of your paychecks to get the most accurate picture of your income.
You should also take this time to make sure you’re taking advantage of any tax or employer benefits available to you. For example, does your employer match 401(k) contributions? Have you checked your eligibility for the new Child Tax Credit?
Once you’ve assessed your income and your benefits, you can create an accurate budget. This budget will likely reflect the recent changes in lifestyle now that more normal activities are being reintroduced into life. Do you plan to travel? Will you have to start paying for childcare again?
These are expenses that may have been put on hold but will now have to be accounted for. Vadim Verdyan, head of advice at Albert, a personal finance app, advises, “If you plan to start spending on something that’s been on the back burner while you were stuck at home, that money will need to come from somewhere else in your budget.”
Also remember to be mindful of inflation. The costs of many good and services have changed because of rising inflation, so what you budgeted for groceries last year might not be enough now to cover the changing prices.
Reestablish Financial Goals
Once you have an understanding of the money you’re making and your budget, the next thing to do is take a step back and look at the larger picture. Does your current financial situation line up with your long-term financial goals?
Now is the time to redefine your goals and prioritize what’s most important for your financial future.
Verdyan suggests making a list of short-term goals and a separate list of long-term goals to help organize your financial success.
For many, the pandemic may have forced a delay of a financial goal, such as buying a home or starting a business. But as Verdyan explains, “As things get back to normal, we have a good opportunity to hit reset on the way we spend.”
If you can make a clear outline of your financial goals, you can structure your saving and spending habits around them.
Be Careful of Debt
Many fortunate Americans were able to use built up savings during the pandemic to pay off debt. But now that the economy is reopening, it’s tempting to want to swipe your credit card for more diners out or flights to Europe.
The last thing you want to do is put yourself back in debt after freeing yourself from it during the pandemic.
Adam Deady, a certified financial planner at MassMutual, warns, “Credit cards should only be used if you can make the full payment every month. If that isn’t possible, you must have a plan to pay it off within a short period of time.”
You could consider spending with cash or with a debit card so you can have a clearer idea of how much you’re spending.
On the other hand, many Americans were forced to take on debt during the pandemic to stay afloat due to job loss, business closures or other unexpected financial blows. If you have debt, now is the time to make a game plan for paying it off. Common strategies include paying off the debt you can get rid of quickest first or paying off the highest-interest debt first.
Maintain Your Savings
As we mentioned, many people significantly increased their savings during the pandemic due to government aid and stimulus checks.
However, the pandemic revealed that many Americans are not financially equipped for unexpected emergencies.
Mark Hamrick, senior economic analyst at Bankrate, advises, “The best financial practices pertain through bad times and good. We’d strongly counsel to make emergency savings a priority.”
Most experts suggest keeping three to six months of living expenses saved for emergencies. However, “Three months is just the starting point,” according to Tania Brown, CFP and coach at SaverLife.
Evaluate your personal life when making a decision on how much to save. Do you have a family you’d have to support as well? How stable is the industry you work in? These are the types of questions that will help you determine if you should be saving more, or less, than the standard three to six months worth.
By following these four guidelines, you will be putting yourself on a path toward financial success. This will allow you to enjoy the current reopening world and have the financial safety net to deal with any further unexpected events.
To a Richer Life,
The Rich Life Roadmap Team