Conquer your student debt. Refinance now.
As the COVID-19 crisis continues throughout the United States, many Americans are still facing financial strains. Fall is normally a time for families to look forward to school starting and preparing kids for classes. But with the uncertainty of school reopenings, families need to financially prepare for a different kind of Fall season.
To get ready for this upcoming year, step back, and take a look at your earnings, budget, and spending. Set up your personal finance goals for the coming months by making reasonable choices now.
1. Check Your Emergency Fund
In the midst of a pandemic, it can be difficult to see past today, tomorrow, or even next week and save money. But building up or maintaining your emergency fund is crucial to your financial lifeline.
If you are working and have your bills covered, try to save anywhere between three and six months’ worth of expenses. In case of an emergency, like losing your job, getting injured, or another crisis, you have the cash on hand to cover the costs. It’s one of the biggest forms of protection.
Saving for many months of expenses might be difficult right now, but any little bit helps your financial health. Previously a good rule of thumb had been three months of expenses covered. However, six months would be a strong long-term goal as the pandemic continues on. If you can only save for a few weeks, it’s better than nothing. Keep your money in an account you can easily access but that’s still giving you a solid interest rate, like a high-yield savings account.
2. Clear Up Your Credit Report
It’s been a busy few months for all of us, which means you may not have had the chance to keep tabs on your credit report. You can check yours for free at AnnualCreditReport.com. All three major credit bureaus — Experian, Equifax, and TransUnion — are offering free weekly credit reports through April 2021. This lets you check your report, dispute errors, and track progress to see when errors have been removed.
3. Pay Off Debt
Hanging onto old debt (like unpaid credit cards or student loans) might be holding you back from seeing a jump in your credit score. The higher your credit utilization — or how much credit you’re using compared to how much available credit you have — can cause your credit score to tank.
Along with that, unpaid debt drags down your credit score the longer you go without paying it. Missed or late payments are the biggest factors in your credit score — the less you have, the higher your score; the more you have, the lower your score.
If you have the means to pay off debt, try to chunk away at it as much as possible. Consider using the debt avalanche or debt snowball methods to organize your debt repayment strategy. Once you’ve paid them off, you may use the newfound money to build up your emergency fund, retirement savings, or start investing for long-term financial goals.
4. Update (and Stick To) Your Budget
A budget can seem daunting to create. At first, it can be very tedious and time-consuming. But setting up your budget and setting savings goals gives you the chance to follow a financial outline that can make sure your money is going where it needs to.
Over the last few months, your budget might’ve changed. For instance, if you now work from home, you’ve probably spent less on gas and more on electricity. Update your line-items to reflect your new normal and give yourself new short-term goals. For example, if you’re cooking from home more now, you may need to have a higher grocery budget and a lower dining out budget.
Right now is hard for most people, and you might need to strip your budget to its bare bones. That means minimum credit card payments and cutting swinging costs — like entertainment — to the lowest amount of money you can. If your income is tight or fluctuates, do your best to stick to your budget as much as possible. If extra money comes in, you can evaluate your budget to see what areas need it most (like paying off debt or beefing up your emergency fund).
5. Set Up Autopay
One of the easiest ways you can set yourself up for success is autopay. This can include your bills, savings accounts, credit card payments, and anything else that gives you the option to. Rather than trying to remember when everything is due and potentially missing important dates, you can set up autopay.
Take a little time to review all your payment options and consider enrolling in autopay for your:
- Car payment and insurance
- Health insurance
- Utilities, like water, gas, and electricity
- Savings accounts
- Investment portfolios
Some companies reward you with a discount if you set up autopay. See if your lenders or financial institutions offer these benefits.
6. Organize Your Investments
In the midst of a pandemic, you may have completely halted investment contributions or liquidated your savings accounts. Long-term wealth management may have gone out the window. This isn’t as bad as you think; if you need the cash, it makes sense to get it wherever you can.
But if your income is stable, it might be time to review your savings plan and investments. Consider lower-risk investments if the stock market volatility scares you.
7. Prepare your future
Thinking beyond the next few weeks or into the next year is difficult, especially if we can’t really see past tomorrow. But the more you can think about the months and years ahead, the more you can prepare for the short-term.
Retirement: If you stopped making retirement contributions — whether to your work-sponsored plan or your IRA — consider starting again and contribute as much as you can. If you’re not set to retire for a while, you shouldn’t worry too much about your accounts. But if you’re wary, consider conservative investments, like index funds, until you feel more comfortable with the market.
Education: Your children’s education might already be top of mind. Spend a little time and money diverting funds into an educational account, like a 529 savings account or a Roth IRA.
Health: You can take advantage of tax incentives by opening a health savings account (HSA). These are only available to those who have a high-deductible health plan (HDHP), so if you don’t have one of these, consider expanding your emergency fund to cover health-related costs that insurance doesn’t.