(NYTIMES) – The pandemic has dragged many people into uncharted financial territory. Whether your bank account has swelled or shrunk during the long months of lockdown, now is the time to take stock of your financial situation and decide on your next steps.
“We’ve had a lot of clients who say, ‘I really need to think about it now,’ said Ms. Pam Capalad, a New York-based certified financial planner. “Either the pandemic was a wake-up call and it really messed up their finances, or people have done well and now they’re saying, ‘I have to figure out what to expect. “
Depending on your financial situation and your priorities, what you do now will vary. But there are a number of ways to put yourself in a better financial position for whatever comes next. Here’s how to get started.
First of all, don’t rush
The trauma of the past year has been extraordinary, and for many people their initial impulse may be to dive in and make travel plans and purchases to make up for lost time.
“People feel like their lives have been stolen from them, and that often goes with increased spending,” said Brian O’Leary, Private Wealth Advisor.
But if there’s ever been a time to reassess priorities and align your spending and saving behavior with your values, now is the time, experts say. Is your career on the right track? Do you love where you live? Are you happy in your relationships?
The pandemic may have helped people think about saving differently, focusing on what brings them joy, said associate professor Inga Timmerman at California State University.
If you’re thinking about changing 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 the things you need to cover, regardless of how the business or side activity goes,” Professor Timmerman said.
Try to get a good idea of how many months you can cover those bills with your savings, she said, or what you’ll do to pay them instead. It could mean selling a car or moving into cheaper accommodation.
Evaluate three things
Whether you dream of turning your pandemic turmoil into a new career and need to figure out how to pay it off, or you just want to feel on a solid financial footing, planners say there are generally three main financial areas to assess first. .
“If someone has an emergency fund, no high interest debt and is saving a decent amount for retirement, they are in a good position to make big changes,” said Brian Walsh, senior director of the financial planning at SoFi, an online loan start-up business. “If they didn’t tick those boxes, they should be more careful.”
1. Set up an emergency fund
In the past, planners have generally recommended that people have three to six months of spending in an emergency savings fund to get through tough times. Some now suggest that this fund should be able to keep you afloat for up to a year.
“Now the advice is even more conservative,” said Dan Herron, certified financial planner and co-founder of Elemental Wealth Advisors.
Your emergency fund should cover basic expenses such as rent or mortgage payments, utilities, food, and transportation. You should also set aside enough to cover monthly health and auto or home (or renters) insurance premiums, as well as credit card payments or other debts.
Whether your savings are healthy or you’re trying to consolidate them, the same advice applies: Set a monthly savings goal and stick to it. Better yet, have funds automatically withdrawn from your bank account each month and deposited into your savings, retirement or brokerage account.
2. Reduce credit card debt
If you have a high credit card balance, now is the time to consolidate that debt by transferring balances or signing up for a debt consolidation service that will allow you to make just one monthly payment.
Interest rates are as low today as they are likely to be in the next few years, said Tony Molina, chartered accountant and senior product manager at Wealthfront, an online investment advisory firm. .
3. Save for retirement
If you are one of the lucky ones who increased your savings during the pandemic, don’t stop now.
Allocating 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 advisor can help you determine the best plan for you.
Ms. Capalad encourages her clients to gradually increase their retirement savings. If every six to 12 months you increase your pension contributions by 1%, you will build up that balance, but the extra withholding will only be a “point on your paycheck,” she said.
One way to increase savings is to reduce expenses that may have swelled 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 reopened, or to cancel your food delivery services.
For some, online retailers have become not only an essential way to order essentials, but also an easy way to buy things that weren’t necessarily needed.
Ms. Capalad suggests that customers who want to break the habit of impulse online shopping to put the items they want in their shopping cart, but not to buy them right away. Then pick one day per week to browse the cart and re-evaluate if they really want these things.
Spending decisions aren’t just about money, of course, but how you want your life to go.
“I have customers who say they will never order wine from a restaurant again,” said Professor Timmerman. They prefer to uncork a bottle at home and invite their friends to take out, she added.
Protect yourself and your family
The pandemic has exposed 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 are unable to communicate it yourself. Depending on where you are, these may be called living wills, health care powers of attorney, or medical directives.
Dana Menard, Certified Financial Planner, says now is also the time to reassess your life insurance coverage. The amount you need will vary depending on what you have, what you want to protect, and your life circumstances.