The COVID-19 pandemic has led many Americans to worry about personal finances such as their investments, wages, and short term goals while also producing uncertainty in both the national and global economy. For people looking for guidance in their personal finances, first consider budgeting. During this tumultuous time, it is vital that Americans know their personal income and have the ability to budget their personal expenses such as rent, utilities, and groceries. A budget will help determine the amount of money needed to live from what’s not essential. The extra income should be separated first into a rainy day fund. This fund is for all of life’s uncertainties and should be used in emergency cases such as a natural disaster, recession, and as in this year, the pandemic. Placing money into this type of fund and leaving it untouched until necessary can help alleviate stress in times of worry and provide comfort for an individual’s financial situation. Then plan for the extra money to go into investment accounts including savings, 401(k)s, or other retirement plans. With the pandemic being far from over, it is more important now to focus on managing personal finances in order to prevent excess stress and worry during these uncertain times. Below are strategies to help ease the strain.
Add to emergency savings:
If there is one thing we have learned from this past year, it is to plan for the unexpected. The pandemic makes it imperative to save and build up one's emergency fund as a necessary step in reaching financial security. In normal times, it is generally recommended to save three to six months’ worth of expenses in a separate savings account. With the added uncertainty brought with the pandemic, having one year’s worth of expenses saved in this type of fund is advised. One way to begin is to start trimming unessential expenses and dedicate any extra money saved to grow the emergency fund.
Limit Expenses:
One straightforward way to ensure that you have enough money at any given time is differentiating between necessary expenses and unnecessary expenses. Making a list of your “wants” and “needs” is a great way to start. Take the money you would have spent on your “wants” and build your savings account, ensuring you have access to money at any given moment. Listed below are some easy ways to start thinking about how to limit your unnecessary expenses:
Avoid eating out: One big mistake people make who are attempting to save money.
Limit online shopping.
Drink more water: Cheaper and perhaps healthier alternative than soda and other beverages.
Wash your own car: Easy to do with little to no capital to complete.
Pay more to loan principal amounts than required each month, saving on interest in the future.
Refinance Your Mortgage:
There are two main reasons why now is one of the best times to refinance your mortgage. The first is that mortgages rates are at all-time lows. On November 5th, 2020 the average 30-year mortgage rate was at a record low of 2.78% according to The Washington Post. The new rates give homeowners the opportunity to drop their home loan interest rate, allowing them to potentially save thousands of dollars in interest over the life of the loan. Secondly, for those with at home work restrictions implemented from the pandemic, there may be more time to navigate through the application process. The process of taking out a home loan can be tedious and exhausting. Each lender will have its own set of requirements for the application. Listed here are some types of documents and information you may need:
W-2 forms from current and previous employers
1099 forms, if you are self employed
Recent tax returns
Bank Statements
These are just a few examples of what may be necessary. Tracking down this information can take a lot of time and effort. With many people not having to worry about the commute times and social events being put on hold, our busy days have become less occupied. Take advantage of the additional time to bear down and tackle the process of refinancing your mortgage and save money to be used for the future.
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