The ongoing COVID-19 pandemic over the past year has wiped out financial chaos. Many have lost their jobs, some have lost much more, and most are trying to repay what they lost in the form of some kind of debt.
As vaccines stop the spread of coronaviruses and regress the global health crisis, the economy is poised for progress. Now is the time to do a personal finance review.
COVID-19 was the perfect storm that depleted funds even for those prepared for a rainy day. With personal bank accounts in a difficult situation, returning to a good financial position means returning to the basics and formulating a solution.
Everyone’s financial plan is different, so there is no single strategy that applies objectively to everyone. However, there are several components that serve as a cornerstone for a healthy financial diet.
The advice of a trusted financial advisor is the first step in the process of recovering from financial trouble. Daniel Island News interviewed several firms on the island, including the Commonwealth Financial Group, Edward Jones and the Wells Fargo Investment Institute, to create a cumulative guide as a checklist for financial wellness. Some advisors also participated in question and answer forums regarding advice they gave to clients during the pandemic, and their answers were given after this article.
Make a plan
There is a big difference between what you can do with your money and what you need to do with your money. To know where you are going, you need to know where you are and therefore it is necessary to start with a financial plan.
Literally sit down and put a pen on paper or hire a financial planner to define your goals. A solid financial plan should include details about your cash flow, savings, debt, investments, insurance and any other elements of your financial life.
Ask yourself what you want your life to look like in five years or 10 or 20? Do you want to be a homeowner? Are the children in the picture? How do you want to live life after work?
Be proactive versus reactive. Go thoughtful, not emotional.
Budgeting is balance
Living within your means is easier said than done, but it doesn’t have to be a constant effort. But it revolves around a balanced budget.
A common fiscal problem in COVID-19 is insufficient liquid savings and the need to break into pension accounts.
Today, there is an incalculable amount of ways to track consumption. Everything from personal finance applications, to spreadsheets and the 50/20/30 timeless rule.
The traditional rule is to spend up to 50% of income after tax on liabilities. The remaining half should be divided between 20% savings and debt repayment and 30% on everything else you might want but don’t need.
However, be careful at discretionary spending. Fortunately, during the pandemic, eating out, traveling, and shopping were the least, which helped suppress impulsive habits.
Debt does not discriminate
Regardless of your income or under which tax class you are filing, net debt is something that everyone strives for. Debt does not discriminate, but it will accumulate if you are not careful.
Whether it is a student loan debt, a credit card debt, a mortgage and a car loan, it is crucial to give priority to offensive debt. The two most common debt repayment methods are snowball debt and avalanche debt.
Popularized by personal finance author Dave Ramsey, the snow globe refers to the first payment of the smallest debt, regardless of interest, and then the next smallest. Debt Avalanche pays extra to eliminate the debt with the highest interest rate.
Expect the unexpected
Meanwhile, in the middle of someone’s regular savings plan, to afford a new car or boat, there must be a completely separate emergency fund. Set aside money expecting something unexpected to go wrong in the future, whether it’s a job loss, bodily injury, or a breakdown on the road due to a car problem.
The traditional rule was to save three to six months of basic costs for an ideal emergency fund. Now financial planners recommend saving from six months to a year to be sure.
While saving for something unpredictable may seem daunting, start by saving a small amount each week. Order your employer to deposit part of your salary directly into your savings account. Take baby steps. Start by saving $ 1 a day, then increase your stake to $ 2 a day and so on.
Think long term
Retirement seems so far away. It’s tempting to focus on short-term, but in the end it will be more helpful if you keep an eye on long-term goals.
To start saving for retirement today, when you should have started yesterday, open a retirement account through an online brokerage house through a traditional IRA, Roth IRA, or taxable brokerage account. These accounts have different rules, restrictions and taxes
implications, so be sure to study the structure of each account.
One of the biggest contributions to your long groomed days of relaxation is your employer if they offer you a 401 (k) match. Not to mention the compound interest that will basically become free money until at the age of 59 and a half you have the right to withdraw without penalty.
When it comes to estate planning, age is just a number and there is no better time to make a plan than the current one. It doesn’t matter if you’re single, married or what you own.
Newsflash, estate planning is not just for the elderly. Accidents happen at all stages of our lives, and some of them weaken than others.
Don’t be surprised and don’t manage your finances and personal affairs. Consider executing basic property planning documents such as a permanent power of attorney, a health care power of attorney, a living will, and a will.
FINANCIAL VIEW: ASK PROFUSIONS
Q: What was the most common personal finance illness of clients during the pandemic?
“The realization of funds established in their short-term segment, needed to cover costs for a certain period of time, did not keep pace with their increase in consumption. We often find customers who underestimate their spending by 20-30%, which coincides with the lack of their reserves. “
– Billy Petzold, financial advisor to the Commonwealth Financial Group
“One common refrain was heard by those who had to suspend their 401k contributions during the pandemic, due to hesitation or uncertainty about their future income, or employers who suspended their respective contributions to their employees due to uncertainty about how their business could go through the crisis. “- Wells Fargo Investment Institute
Q: What is the popular financial flaw that clients have continued to create associated with COVID-19?
“We have a lot of clients who keep accounts for personal investments with online brokerage houses, and the mistake they made was switching to cash in March. A scary scenario of buying high and low selling. Attempting to time the market is extremely inefficient and creates additional stress when deciding when is the right time to return. ”
“Investors can sometimes allow emotional title risk to influence investment decisions and may find themselves selling at the bottom or at the top.”
– Wells Fargo
Q: What advice did you give to clients struggling financially with the pandemic?
“The biggest advice was to focus on what you can control. As planners, budgeting is at the forefront of our minds and the basis for our path to financial freedom. We worked intensively with clients who struggled to define desires versus needs in their monthly budgets to minimize potential debt accumulation.
Q: What is the universal lesson in financial planning that we all need to consider regardless of your income or tax bracket?
“Follow your money. Spend time understanding the flow of dollars in your financial plan. Real tax-adjusted income, spending habits, retirement accounts, unqualified accounts, risk mitigation products, etc. ”
“To know where you want to be, you have to start with a plan to get there.”
– Wells Fargo
Q: What is the most important factor in restoring / maintaining financial health after a pandemic?
“Follow the financial plan you have established and start rebuilding the parts of the foundation that have been most damaged. The idea of an emergency fund has never been more relevant, so be diligent in restoring it. ”
“Be frugal in your savings and try to pay yourself ‘first.’ If you’re worried about the market, just add something to your investment each month, instead of jumping. Wealth building doesn’t happen overnight. It takes time and patience. ”
– Wells Fargo