In my younger days I never thought I would be living through a pandemic. A pandemic which has devastated America's economy, put hundreds of thousands of people out of work, out of business, out of homes, and worse. Entrepreneurs who once flourished are now closing doors, reinventing themselves in this new age, relocating and downsizing or worse drowning in debt and filing for bankruptcy. In my mind things like this only lived in history books and the modern era in which we currently reside would create a safe haven for financial disasters such as this. We can update a social media status in a matter of minutes, of course we could work from home if needed. This was something I was striving for and encouraging in my consulting on development and expansions even before the pandemic, but the actions companies and corporations needed to take to make this happen proved to be more complicated than that. Though, as a nation we rapidly adjusted to life in quarantine, meeting over zoom video chats and all that came with working remotely, I realized the workplace and technologies weren't as future forward as I once imagined.
Financial responsibility, planning, and wellness is proven to be needed now more than ever if Americans plan to rebuild and get back on track. You always see online health coaches pushing people to develop healthy relationships with food, but what about a healthy relationship with finances? You can just as easily binge with an online shopping cart and credit card as your can a box of Little Debbie. Priorities need to be reevaluated and a plan needs to be put in place if the majority of the population wishes to not only simply over time recover from the financial impact of the Covid-19 pandemic, but to go on after living a comfortable, sustainable lifestyle. Let's put "Keeping Up With The Jone's" in the past along with 2020.
Maybe the pandemic put things into perspective for you like it did me. Maybe you saw a family member or friend who is always saving, investing, and living within his/her means not be as greatly effected as possibly you were. There have been many sides to this moment in history and moving forward experiences will be as unique as the people who lived though them. Though, I am here to share with you 5 tips for financial security that will help ease the stresses and struggles when it comes to unexpected financial downfalls. Though these aren't new tips, frankly they are a tale as old as time, but the importance of implementing at least just a few of these measures could save your financial future.
Having a rainy day fund of at least $500 is absolutely step one. This is a security every single adult should have in place and here is why: I say five hundred because this is about the cost of a set of tires, most auto repairs, a routine medical bill, home repair, car payment etc. I kind of believe the five hundred dollar amount to be a starting point for any newbi taking control of their finances. One of the most important priorities for any working adult is transportation. Not everyone lives in an area with reliable and functional public transit so making sure you have something set aside for an emergency is crucial. If you can't simply get to work then how will you make money moving forward? I recommend keeping this in a separate savings account hidden from daily view and liquid. Maybe open a savings account at a local institution like a credit union or keep this account unlisted on your banks mobile app so you're not temped to make easy transfers to your checking when you see that pair of shoes that just came back in stock.
Three Month Rule
It's a common rule that in order to begin to be financially secure you can cover your living expenses for a minimum of three months. It's suggested that you save for even a longer span of time like six months to a year, and I wouldn't disagree as we have seen with the corona virus pandemic. To begin making a plan for this look at your bank statements for the past three months. Calculate what you spend on:
Housing (rent or mortgage)
Insurances (home, auto, health, life, etc)
Utilities (gas, electric, water, trash, cable/ streaming, phone etc)
Then factor how much you would need to save to cover those basic needs for three months and that's how much you should work towards setting aside. As a former banker I have seen people have multiple accounts all nicknamed for their various uses. If this helps you keep on track and organized I highly recommend doing this. Many banks offer free accounts now a days so categorizing your accounts for use is relatively painless. You can even set up small auto transfers to help you work towards your goals, or even redirect a portion of your direct deposit into various accounts. This will be a more out of sight out of mind method of saving.
Set Up Insurances
If you haven't done this already and you are over the age of 21 then I highly recommend meeting with a quality life insurance agent and getting these policies in order. Many build cash value like the equity in a home and as you pay your insurance premiums the more cash value you build. This is great if you ever need to borrow against it in the future, while keeping you and your financial burdens covered in the mean time. A few simple tips in looking for insurance coverage and the amounts are:
Get enough coverage to insure your income and your financial burdens, like home mortgage and debts even if for just a period of time.
Get multiple options. Todays options when it comes to bundling various products allows for a fully customizable plan suited perfectly for your needs and budget. Don't let an agent push you in the direction of the product that grants them the highest commission if it's not the best option for you.
The basic calculation for estimating the amount of coverage you need is:
(income x years disbursed) + debts + legacy x annual rate of inflation % = coverage amount
Life insurances are all based off of age and health. So getting a plan while you're young and healthy not only covers you when you have the most financial burdens within your working years, but is also more affordable. Every 5 years insurance premiums go up greatly so securing coverage sooner rather than later is always in your best interest.
Most people don't understand investments or think they are too risky, but frankly that's just not true. Sure the stock market takes some understanding and fluctuates greatly, but not all investments are within the stock market. IRA's, Mutual Funds, Exchange Trading, Trusts, Estate Planning, etc. can all be handled by a financial planner. Financial needs and growth goals change as life milestones are reached, like starting a career or building a business, getting married, starting a family, buying a home, retirement etc. so set up a meeting with a financial planner. I personally love the work of Jeramiah Botkin at Jeramiah.Botkin@edwardjones.com. You don't have to be ripe with wealth to sit down with a financial planner or start planning for a secure financial future today. Planners evaluate your income, financial goals, and risk tolerance to construct a financial plan suited for you.
Credit Limits & Scores
Credit score is something I didn't give a flying fish about in my early 20's, but regardless of what we think they make the world go round here in these vast United States. It's important to live within your means and not over extend your financial boundaries. Not carrying a balance on a credit card and only using a maximum of 30% of your limit will keep you in good financial standing with your credit company and your score. Also, if you are trying to build/repair credit make sure to look at your statement for your credit cycle timeline. Paying off your credit card before the company has time to report to the holy credit trinity means your charges for that month won't count towards your limit use. So it's recommended to pay your credit bill after the statement has been issued and before the due date. Try using your credit cards for recurring charges like streaming services, insurance premiums, utilities etc. Planning this will ensure charges hit your card every month and paying off the card instead of the bills will boost your credit score, while keeping your bills in one easy payment.
If you have a home with equity try taking out a HELOC even if it's not needed now. If your credit is in good standing and you have the required amount of equity in your home having this as a cushion able to be used instantly in case of an emergency is a security. Home equity lines of credit can often times take anywhere between 14 - 60 days to close making funds not instantly available in a time of need. Having an open line with a zero balance will also help prove financial responsibility if needed for any other upcoming credit checks. HELOC's often times also have a very low interest rate so if you come across an emergency or need aid for a large purchase, this line of credit is a more forgiving option than say a credit card or personal loan.
Feel free to reach out and let me know if you begin to implement any of these financial steps to a secure future. I would love to hear from you and let me know what types of topics you would like me to cover in the future.
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