According to a January 2021 poll by Pew Research, 44% of Americans predict it will take three years or more for the pandemic to recover economically. One in ten Americans thinks they will never recovered.
For many of us, the goals we had for our lives a year ago reflect a different world than they are today, where people are lost, relationships are changed, work situations are changed, and financial accounts are affected.
The most important thing to realize is that Even if the goals you pursued a few years ago seem impossible now, you will still be within reach as you rebuild your financial footing and work towards a better future. Your long-term goal may be different, but you can still work on doing better each day than the previous ones.
The financial recovery has two parts. First you need to rebuild your financial foundation, then you need to take steps towards a better future. Let’s look at the game plan for financial recovery, even if your old goals now seem impossible.
Rebuild your foundation
Start by making your current life as stable as possible. Don’t worry about the future just yet. Instead, put yourself in a situation where you are not constantly struggling with debt and consistently spending less than you deserve with your life and your professional prospects as they are now.
Permanently reduce less sensible expenses
The incredible tragedy of COVID harbors some germs of opportunity, and one of those germs is the power of clarity. It has given all of us a unique opportunity in our lives to reflect on what is really important to us and what is not.
A big part of that is thinking about what pre-COVID and COVID-era spending actually mattered to you and what didn’t. Pull out some bank and credit card statements from the last few months, as well as some statements from the months just before the impact of COVID on your life.
From your current perspective, consider which of these expenses will actually be incurred makes sense. Which ones do you remember vividly? Which ones brought value to your life? Which brought value, but that value could easily have been replaced by something less expensive? Which ones were simply forgotten or were completely unforgettable?
It’s easy: Do not bring back the low value expenses. Leave them in the trash can of history. Keep the ones that make sense and those that are essential to daily life and cut everything else away. If you’re cutting too much and it’s not joyful, that’s fine. Just think about what’s missing and just try to bring this back. With that perspective on spending, you will get the cash for most of the other steps in this article.
Rebuild an emergency fund
An emergency fund is a pool of cash that is reserved for unexpected events like a global pandemic, but also for things like an unexpected car repair or sudden job loss. It is usually stored in a savings account. While some financial advice will focus on having a certain dollar amount in your emergency fund, a much better approach is to auto-fund it forever by setting up an automatic weekly transfer from your checking account to that savings account and just never turning it off and then accessing that emergency fund in an emergency.
For many people, COVID has used up their emergency fund, and if they didn’t have one, it resulted in a lot of credit card debt (which we’ll get to in a moment). A valuable step in rebuilding financial stability in your life is to simply set up an emergency fund, be it for the first time or to rebuild. This will become a valuable tool for the next time something big and unexpected comes your way.
Pay off high interest debt
The first step is to create a debt settlement plan that will help you determine which debts need to be prioritized. Make minimum payments on all of your debts, then toss the largest possible additional payment on the debts listed as a priority on your debt settlement plan. Make this a main focus until you’ve got rid of all of your high yield debt (anything over 8% interest is considered high yield debt).
Pay back money borrowed from retirement accounts
Not only did people accumulate credit card debt, but millions more accessed their retirement accounts during the COVID lockdown, according to CNBC. This puts them in a financially difficult position.
For many, the money withdrawn from retirement accounts can be repaid without tax penalties thanks to Section 2202 of the CARES Act, provided you repay it within three years of the distribution. If you withdrew funds from a retirement account in 2020 and are not sure if you qualify, contact a tax advisor.
If you don’t qualify for a repayment, you can still compensate by prioritizing contributions to retirement accounts in the future.
Move into a better future
Once you have a solid financial footing back, the next step is to build a better financial future for yourself. It may not match the goals you once set for yourself, but you can still pave a financial path to a better life.
Avoid re-inflating expenses unless it makes sense
Most Americans saw significant changes in their spending during COVID, whether it was for reasons of loss of income or loss of spending opportunities due to the closure of services and businesses. When things open up and opportunities arise, don’t just dive back into “the way things were”.
As you think about things that you used to do, think carefully about whether they really represent value to you now. The goal is to create a new set of routines that will bring together the best of your pre-COVID life and your COVID decisions, keeping only the things that matter.
When you bring something “old” back to try again, ask yourself if it’s really worth it, and don’t be afraid to drop it when you find a better routine.
Increase pension contributions
Many Americans saw a negative impact on their retirement savings during the COVID, whether because they couldn’t contribute or had to borrow money from the account. When you get things back on track and your financial footing is safe again, consider increasing these pension contributions to higher levels than they were before.
If you have a company retirement account, simply increasing your contributions is a good choice. If you don’t, consider opening a Roth IRA or if you already have one, increase your contributions.
Remember that the funds for this come from differentiating your expenses. If you can’t bring back the frivolous things from your pre-COVID life, you have money for financial security and this is a powerful way to spend it.
Find out your non-retirement goals and start saving
What if you have other goals in life or you already feel safe with your retirement savings? Identify other big goals in life and create a plan for them. Here are some common goals in life:
- Save for your child’s college education is a priority for parents. This can be easily tax-relieved by using a 529 college savings plan.
- Save for a car purchase is useful to almost anyone who relies on a car. Since this purchase will almost always be in the next few years, keep your money in a low-risk area, such as: B. on a savings account.
- Save for a deposit is key if you are considering owning your own home in the future. If this is a goal that is likely to become a reality in the next few years, invest money in something with low volatility, low risk. However, since this is money, you are not strict rely You can choose more aggressive investments.
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