How To Prepare Financially for Uncertain Times
We are living in an unprecedented time, and while many have already experienced a recession, it can be hard to know just how the COVID-19 pandemic will continue to affect the economy. While the federal government has organized and begun distributing financial relief to many Americans, the situation has served as a stark reminder of just how precarious finances can become in a time of crisis. That said, there are plenty of ways that you can not only take charge of your finances today but prepare for whatever tomorrow has in store.
Continue Working (If You Can)
One of the most important aspects of working toward and maintaining financial independence is that you should always be taking steps to move your career forward. Unfortunately, for many Americans, their ability to work has been taken away abruptly, throwing a huge wrench into any opportunities to advance their careers. If you’re one of the lucky few who has the capability to continue working, either from home or because your profession has been deemed essential, it is imperative that you capitalize on this opportunity to keep the cash flowing.
If you do have the ability to work from home, it would be wise to look into what high-speed internet options are the best for you, especially considering internet providers across the country are currently offering deals and canceling late fees in order to help with the COVID-19 pandemic. The sheer number of conference calls and video meetings that you might be having over the coming weeks makes having a good connection vital to your ability to continue working effectively.
Continuing to work if you are able isn’t just beneficial in the short term. It will help you down the line, as well. If you can keep working and contributing to your 401(k) plan or any other retirement accounts, you’ll be giving yourself a leg up in the future. Ideally, you’ll stay on track to reach your maximum contributions to your 401(k) plan by the end of the year if you keep working consistently throughout the current situation.
Avoid Taking On Debt
While everyone is struggling right now, it isn’t the best idea to take on any serious debt that could impact your ability to save in the future. Any smart financial advisor will tell you that now isn’t the best time to buy a new car or apply for a credit card and, in reality, you should be prioritizing paying off debts you already have before taking on any new debts. Even if it seems like a great deal with low interest rates, the simple fact is that when the entire country is facing economic uncertainty, acquiring further debt isn’t exactly smart.
Even though avoiding debt and paying down any existing debt should be a priority when it comes to managing your money, it should be noted that not all debts are the same. For instance, if your mortgage or student loans have low interest rates, or if payments have been deferred entirely, they shouldn’t be your top priority when paying off debts. Instead, more time-sensitive debts such as bank loans and credit card debt should be at the top of your list so you don’t end up racking up too much interest. While taking on medical debt might be unavoidable, it should still take a back seat to debts that have high interest rates as they will grow your overall debt considerably if not addressed quickly.
Avoiding and eliminating debt isn’t just something you should be focusing on during a time of crisis. It should become one of the main driving goals of your financial wellness. Developing and implementing a solid debt elimination plan will help you feel less powerless, and whether you decide to use the snowball method where you focus on paying off smaller debts first or you want to start with the debt that has the highest interest rate, paying off your debts will help you to actually start saving for a rainy day.
Start An Emergency Fund In Earnest
It is a time-tested piece of advice, but it really is a good idea to set up an emergency fund for situations like this. For many, hearing about how they should have saved up money can sound like a cruel joke due to how hard it is to actually get past living paycheck to paycheck these days. However, if you take the appropriate steps and actually lay out a plan for yourself, you’ll find that saving up enough to act as a cushion against emergencies like this isn’t as hard as it might seem at first glance.
The first and arguably most important thing you need to do when you begin orchestrating a long-term savings plan for an emergency fund is to lay out your budget to see exactly where your money is going. Budgeting can be an enlightening experience and can highlight areas where spending can be curtailed. Without a solid spending budget, trying to save is like rowing a boat with one oar at night as it is nearly impossible to tell exactly where you’re going or how you’ll get there.
In order to actually get an emergency fund going, you need to ensure that you’re financially stable. That means understanding exactly what your debt to income ratio is and figuring out just how much money you’ll realistically be able to save each month without compromising your lifestyle.
At the end of the day, preparing for financially uncertain times is just like any other type of saving. You need to make sure you’ve got money coming in, that you’re avoiding taking on new debts, and budget like you’ve never done before. It certainly isn’t easy, but it can give you peace of mind.