You or your family may have strayed from your personal finance goals since the pandemic became a reality for us all. Whatever your circumstances may be, the pandemic may have changed the way you thought about money. Where you spend it, how you spend it, how you should invest, how important an emergency fund is, and whether you’re living within your means or not. The answers to these questions must have changed for you.
Now that we’ve started seeing the light at the end of the tunnel, now is the perfect time to rethink your personal financial plan as you head towards the new normal. In this guide, we’re breaking down the vital components of a post-pandemic financial plan.
What Does Your New Normal Look Like?
After a year of being socially distant, holding off travel, and staying mostly at home, people all over the world have the chance to return to activities they weren’t allowed to take part in for the last two years. Now is when people should reassess the way they spend their money. Take this time to identify important things and only spend on things that you’ve missed the most. This is particularly true for people who have managed to keep their jobs during the pandemic and have been able to save money.
This means that now they have a cushion in their spending account. What do you want your new financial plan to look like? Have you missed the retail therapy? Did you miss dining out with friends? Did you miss traveling?
Experts recommend that you sit down and consider your top financial values and then the purchases you’d like to make.
Review Prices
Bear in mind that when you’re putting together a post-pandemic budget, you’ll have to consider the newer and inflated prices. These could be the prices of gas, food, and other essential services and products. This also means that a pre-pandemic budget won’t work in today’s world. If you’re considering traveling, we would recommend doing some extra research on costs like food or entertainment to ensure you’ve allocated enough money for vacation expenses. Moreover, rising costs can also mean that certain travel-related projects may have different price tags or are canceled completely.
For instance, a simple activity like replacing the fence in your front yard may take extra time and money because of a lumber shortage due to a stoppage in global supply chains. Several amongst may not account for costs like these in our initial budget. As these inflation forces continue to rise, consumers may have to keep a close watch on their spending and the categories where prices are increasing for the next few months, particularly if they’re traveling actively.
You can expect it to be highly volatile, though.
Pay Off Credit Card Debt
The unofficial term used to describe the interest rate charged on credit card balances is “ridiculous.” Even though it’s common for banks to pay their savers less than 1% on savings accounts, the average interest rate they charge credit cardholders with a pending balance is 17%. Paying off high-interest debt is one of the best investment decisions you can make. Furthermore, paying off credit card debt is a huge step towards financial security.
If you can build a strong credit score, you should consider checking out if you’re eligible for a balance transfer deal. This will transfer you onto a new credit card that will waive all your interest payments for the initial period. Not having to pay interest for an entire year or more gives you ample time for repayment without you having to worry about interest piling up.
That said, if you’re not eligible for a balance transfer, then there are two famous debt-relief strategies you may want to consider. The “avalanche” way can make the most sense from a financial perspective. You’ll pay the minimum amount due every month on your credit cards, and then you’ll add more money to the card that is charging the highest interest rate. When the balance on the card charging the highest interest rate is paid off, you start devoting payments to the card charging the next-highest interest rate.
Unsure of where you’ll find the extra cash to add to the card with the highest interest rate? Look in the budget you’ve got running in the background. An expense may get chopped off completely, or perhaps you’ll have some strategic tucking and nipping that can reduce some of your monthly expenses.
On the other hand, the snowball strategy focuses on sending those extra payments to the card with the smallest balance. Some people prefer this method because of its psychological aspect: the debt will be paid off quicker when you’re focusing on the card with the smallest balance. Seeing a card hit “zero pending balance” can be a source of valuable motivation that is hard to find. That said, if you can stay committed, the avalanche method will help you save more money.
Reduce Your Family’s Expenses
Now that you’ve taken care of the biggest expense sit down and create an exhaustive list of all your family’s recurring and fixed expenses. Take a note of all the utility bills, insurance payments, car payments, phone plans, subscriptions, mortgage payments, rent, and all other expenses. Now reduce and eliminate as much as you can. Do you still need those streaming services? Do you need a VPN connection when you can get one for free?
Now eliminate as much as possible. Try to negotiate with your family and explain the situation at hand to them. Every little bit will help! Bundle all of your financial products and services so you can bank in just one place.
Do You Have An Emergency Fund?
Okay, so it’s likely that you don’t need any convincing that having money in a bank account for all the financial curveballs life throws at you is an ultimate stress reducer. It’s impossible to see several expenses coming up, be it layoff due to a pandemic or your car acting up – having an emergency fund can save you in many of these cases.
But how do you create a safety net to lean on? You’re not alone questioning your financial stability. A study by Bankrate showed that 60% of people say that they don’t have enough money to cover a $1,000 bill. Building an emergency fund starts with setting a goal of the amount of protection you want. At a minimum, it would be wise to have at least three months’ worth of living expenses saved in an account dedicated to your emergency funds; six is better.
Can’t even think of pulling that off? Stop focusing on the end goal. The trick here is to take help from an automated system that devotes money to the emergency fund account every month. The best possible way to achieve this is to get a separate bank account, or union savings account that you can designate as your emergency fund account (keeping this money into your regular bank account can increase the temptation of you using this money for non-emergency purposes).
An online savings bank usually has the highest yield. You can set up a high-yield online savings account with an automatic transfer. To reduce the temptation to spend, decline the debit card the bank will offer you.
Set Aside Savings for the Post-Pandemic Lifestyle
When you’re piecing together your monthly budget, assess how much you’re willing to spend and how much you can afford for those activities you’ve been looking forward to the most. Thinking of taking a vacation? Estimate the cost of that trip. Check out the hotel and airfare prices for the dates you’re particularly considering. The earlier you plan, the easier it will be to increase your savings to afford the expenses you’re thinking of.
But perhaps you’re still deciding on how you want to spend your free time? Allocate a certain portion of your monthly income towards a savings fund dedicated to post-pandemic spending. This way, you’ll know precisely how much you can afford at any time by simply checking the account balance. You also won’t feel bad about wiping it all out! The money was put in the account to be spent!
Emotions and Financial Decisions Don’t Go Well Together
One thing that may come naturally after a pandemic is the high influx of emotions. People may focus on getting where they were before the pandemic. If you were perhaps a person who ate out once a week and now that you haven’t gone out in a year, you might want to double down and eat out twice.
At the very least, that is understandable. The pandemic largely interrupted our lives for more than a year. However, it may become a spending trap door if you’re not careful with your finances. Even though you deserve your time outside of the home, don’t let your emotions get the best of you. Without question, emotions have played a big part in our financial decisions through the last year. But if you’re in a moment in which you’re about to make a big financial decision for something you don’t need – consider taking a step back.
What You Should Consider If You Were Jobless
A certain group of people may feel excluded from the post-pandemic spending boom: jobless people. Restrictions to stop the spread of COVID-19 wiped out 22.2 million jobs in America, and only 63% of those jobs were ever recovered. The job market’s recovery has been uneven, too. The Hispanic and black population has not been called back to work as quickly as their white counterparts, and women have also disproportionately fallen out of the workforce. For the most part, lower-income individuals have had to bear the brunt of the problem. If you’re dealing with a job loss, it’s essential to consider both your income and expenses.
Trim the money you owe by utilizing every federal support program available to you (for instance: federal student loan pause). After that, reach out to different firms and lenders to which you regularly pay a bill. They may help you in creating a forbearance plan that fits your situation. Experts say workers should use their network for non-public opportunities in a tough job market and focus on improving their skills while waiting for a job offer.
If you’ve lost your job and had to use credit cards to afford your lifestyle, consider paying the debt you owe first. The debt you’ve accumulated can hold you back from making big purchases. Try to leverage the low-interest offers you can find. Whether they’re helping you consolidate a personal loan or if it’s a balance transfer to take care of an unpaid balance, do all you can to avoid further debt.
Prepare for the Next Emergency (Possibly Another Pandemic?)
As bad as 2020 and 2021 were for some people, it’s always a great idea to take on the proactive approach and prepare for the next problem, too. COVID-19 tested our financial plans, which gave us a perfect chance to find any possible weaknesses in our financial plans. If you still have a job, thank whoever blessed you, and create a backup plan for the day you get fired. In a world riddled with uncertainty, we suggest padding up your emergency fund more than you did.
Save up a year’s worth of expenses. While this may not sound realistic, start saving up with a small goal ($500 perhaps) and then grow from there.
Consider Your Options
Once you’ve given ample thought to the options that could help you reach your goals, you’ll start to see the different pathways (stocks, mutual funds, bonds, etc.) you can take to reach the destination. So which route do you take? Even though the Declaration of Independence told all of us that “all men are created equal,” the same can’t be said for financial strategies. Every option isn’t available to each individual.
Therefore, before you select a strategy, you’ll have to evaluate every option to complete your financial plan thoroughly. Assess the pros and cons. For instance, you may be considering moving the money you’re saving from a savings account to your stocks account. This change in investment methods may increase the rate of return of your savings which may help you generate added revenue. However, the stocks in which you’ve invested your savings may also carry more risk than the savings account.
When evaluating your alternatives, you also need to factor in the opportunity costs of what you’ll have to forego to pursue your goals. Adequately evaluating every option can help you select the best route to achieve all your financial goals.
Implementing Your Financial Plan
By this point, you’ve done most of the work associated with creating a post-pandemic financial plan for you and your family. So far, you’ve reviewed the prices, reduced your expenses, and have created an emergency fund. Now, it’s time to put the puzzle together and look at the entire picture. Since you’ve identified the options available to you and weighed every strategy, it can now be easier to look at your goals based on your current situation. To finalize the plan, you’ll have to make decisions about the course of action you’re opting for.
Once you select a strategy, consistency is paramount.
Review and Revise
The final step in your post-pandemic financial plan is perhaps the most important. While you’ve done your due diligence at each step to create a solid financial plan, one fact remains: the uncertainty of life. For this reason alone, you must review your plan often and revise it whenever the need arises. Reviewing your personal financial plan will help you gauge your progress towards your financial goals. It’s possible that strategies you planned originally may not have the intended results. In this case, you may have to readjust.
Moreover, no matter how carefully you walk through every step, unforeseen events will happen. Think about it this way, we all thought we had our life planned out two years ago; but COVID changed the meaning of everything. You may have to incur unplanned expenses or receive an unplanned income. Instances like these may make you change the path you have to reach your goals. Your goals can change, too.
While having a home may not be a priority for you now, it may be one four years down the road. As your current goals slowly wane off your list, your plan will have to morph to incorporate these new changes. All in all, your life will change, which means your financial plan will have to change, too. That said, it’s easy to fall into an excessively frugal attitude, too. While opting for an affordable option is better, in some cases, opting for a premium option can save you more money in the long run.
Conclusively, while you track your family’s expenses with a personal finance app or a good ole’ Excel spreadsheet, the hard part will be sticking to the plan. As you begin tracking your expenses every month, preferably every week, you’ll familiarize yourself with your spending habits.
Once you do, fine-tune your plan to your habits, everything else will fall into place on its own.
