Entering 2020, I was amped. I had booked a trip to visit friends who I hadn’t seen in years. There were tickets to concerts, baseball games, and RSVPs for weddings. My calendar was getting full, but I was looking forward to everything that I had scheduled.
Obviously, by the spring, those plans were scrapped. What’s more, like so many other folks, I wasn’t prepared. Initially, finding a mask and certain items at the store were difficult — I’m talking about you, Ms. TP, and Mr. Cleaning Stuff. Even if I did try to find alternatives, I was often out of luck.
Here is how to take the pandemic, and make it a way to go forward financially prepared.
While certainly stressful, finding paper towels was peanuts compared to not being financially prepared. In fact, before the pandemic, in the great year of 2019 to be exact, it was found that 69% of Americans had less than $1,000 in savings. That became a serious problem if you suddenly became unemployed or forced to reduce your hours.
As the year marched on, the labor and stock market have improved slightly. However, the economic impact from COVID-19 has impacted almost half of U.S. households — it’s worse for low-income Americans or those who fought the virus.
Things are tough right now — the economy has been awful, but there is a silver lining.
If 2020 has shown us anything, it’s about realigning our priorities. More importantly, this year has stressed the importance of being prepared so that you aren’t so easily caught off guard. And this is especially true when it comes to your finances.
How can you become more financially prepared going forward? Well, here are 6 ways you can tangibly achieve that goal.
For the Gen Zers out there, you might have a basic understanding of how challenging the Great Recession was just a decade ago. But, those of us who survived that period might be able to draw parallels between then and now. In particular, the importance of minimizing your expenses.
You’re probably already doing this. One key lesson from COVID was that you don’t always need to go out to dinner; instead, you can cook at home with your family. There’s no need to go on an expensive vacation when you could go camping with your kids.
And, what’s the point in maxing out your credit card for stuff you really don’t need, simply because you feel like being spontaneous?
In other words, to financially brace yourself for an emergency, you need to tighten your belt — so to speak. Some of the most common methods to embrace would be the following.
I suggest that you create a budget to see where your money is going. You might be able to cancel unnecessary subscriptions or memberships then. For example, you might want to cancel your gym membership if you’re working at home.
What about your business? Well, you could postpone things like magazines and your snack subscriptions at the office.
Be cautious with discretionary income.
If you’re unfamiliar, this is any money that’s leftover once you’ve paid for essential items and taxes. It’s usually what we use to spend on non-essential items like vacations or impulse purchases. Instead of burning that hole in your pocket, put the money towards building a savings account or paying down your debt.
Rethink your grocery strategy.
Because grocery-store-logic contains the largest points in your discretionary-income line items in your budget, it deserves its own section. And yes, it doesn’t help that we’re spending more time at home cooking — and dreaming of that fantastic expensive crepe maker.
To control impulse buys, make a list, and stick to that list when you go to the store. You should also learn how to become an extreme couponer or purchase generic products. And, if it’s within your budget, consider using an app like Instacart so that you’re only buying what you need.
If you use Instacart or have the store deliver, you can go over every item several times — while sitting at home in your jammies. Less store-stress to deal with.
Learn how to negotiate.
At both your business and home, contact your internet, cable, or phone to see if you can get a better price. The same is true with your credit card company. They may work with you to secure a better rate.
There are also tools like Trim. It’s an app that will identify and negotiate the best rates on your behalf.
Get your hands dirty.
I know that we all want to live the Tim Ferriss 4-hour workweek. But, until you’re back on your feet, you may want to go back to your time-consuming activities — like extra work hours.
Examples of work may include administrative tasks, cleaning your home, yard work, or giving yourself a haircut. The money that you would normally spend on outsourcing work items could help pad your emergency fund.
2. Maximum income.
Before the pandemic, your maximum income probably wasn’t too taxing. You could ask for a raise or work some OT. Of course, that most likely isn’t an option right now. Always know that all hope is never lost.
For example, you could pick up a side gig or launching a side hustle. Even if doing something like food delivery or at-home childcare isn’t permanent, it’s supplemental income that you could put toward good use.
If you’re really clever, think about earning a passive income. It could be something as simple as starting your own blog or investing in real estate. If this isn’t your wheelhouse, then here are 101 passive business and income ideas for you to consider.
Another proven way to maximize your income? Diversification. Never forget diversification — diversification is “forever-work.”
“One of the most important things you can do to be ready for an economic downturn is to make sure your income comes from different sources,” explains Miranda Marquit in a previous Due article. “Income diversity can protect you to some degree when one source of your income fails.”
“It’s not just about making sure your business has diverse revenue streams, either,” adds Miranda. “Your personal income needs to come from more than just your business or your day job.” Again, hustling on the side could help. But, this applies to your investments.
Rather than putting all of your eggs into one basket, spread things out. “Each investment has a different characteristic and volatility,” clarifies Rumzz Bajwa in another piece for Due. “When you invest a part of your money on different stocks, you won’t risk losing all your investments at once.”
What happens if one of your investments tumbles? No worries. Your other investments can help mitigate that loss.
What if you’re a business owner? Pivot your business model to align with these new challenges.
3. Protect your savings.
What if you had been doing all of the above? Well, first, let me tip my hat to you. You’re ahead of the game.
Unfortunately, you may have been forced to tap into your savings during the coronavirus. Don’t beat yourself up too badly. You have to do what you have to do.
Thankfully, there are measures that you can take to protect your savings.
- Keep your retirement in mind. “If you’re investing monthly through a 401(k) or another retirement plan, and have decades until retirement, you’re in fat city,” writes Stacy Johnson for Money Talks News. “Stocks are on sale and may get cheaper yet. Don’t change a thing.”
- If you have money on the sidelines, keep it there for a rainy day.
- Are you concerned about the stock market? If yes, you might have too much invested, so it’s maybe time to allocate accordingly.
- Compare and CD interest rates and lock them in before they plummet.
The best way to safeguard your savings? Be proactive. For example, if you’re having difficulty keeping up with your bills, contact your lenders and creditors. They should be more willing to work with you during this difficult time — which is better than getting slammed with late fees and penalties.
Did you also know that under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, student loans are suspended until December 31, 2020? And, for mortgages, you may be able to request a 180-day forbearance.
“And especially in a pandemic, you should be asking your ‘ducks in a row’ questions,” recommends financial planner Molly Ward. These include:
- “Is my money protected if I get sick?
- Do I have insurance coverage if I lose my job to an illness?
- If I’m older, do I have enough funds to cover potential long-term care costs?”
4. Increase liquidity.
For the uninitiated, liquidity is simply the assets you have on-hand that you can quickly convert into cash. Examples include:
- Assets that can be sold. Everything from old clothing to business equipment is a fair game. You could also think outside the box, like renting out a portion of your office since most of your team works from home.
- Marketable securities like stocks and bonds that you can part with.
- Accounts receivable, which is uncollected debt from customers. Either send them a reminder or turn to something like invoice factoring.
You could also ask for an increase in a credit line or even take out a business loan. But you can also start small. Maybe set aside $100 per month or download micro-investing apps like Acorns. It rounds-up your spare change and sets aside.
5. Prepare your credit for a post-pandemic life.
With so much going on around you, I doubt that preparing your credit has been a priority. If you’re planning on taking out loans in the future or snagging a lower interest on credit cards — preparing for future credit and protecting your credit should be a priority.
“It isn’t uncommon for creditors to re-evaluate credit and lending during times of uncertainty, and this is one of those times,” Leslie Tayne, a debt-relief attorney and founder of Tayne Law Group, told CNBC. Even worse?
Remember: those sneaky credit card companies can make changes without advance notice.
What’s more, some companies are adjusting their rewards programs to address new spending habits. And, diabolical individuals are spreading scams faster than the virus itself.
To handle credit security and prepare your credit for the post-pandemic world by:
- Constantly monitoring your credit to keep tabs on your credit. You’ll also be notified of any fraudulent activity.
- Reading your statement extra carefully. “During times of crisis, scammers and identity thieves are even more prominent because they prey on vulnerable consumers,” Tayne says.
- Freezing your credit if you aren’t planning on using it anytime soon. It’s another effective way to thwart scammers.
- Thinking ahead about your post-pandemic budget. The pandemic may have enlightened you to areas where you can continue to spend less going forward,” adds Tayne.
- Knowing when hardship programs will be rolled back. As you know, many lenders are assisting those affected by the virus. However, they will eventually end. Make sure you stay on top of this to avoid late fees, which will influence your credit.
I know that this has been a terrible, awful, no-good year — and a very, very bad year. But, you can make things a little brighter by becoming financially prepared.
Taking care of your finances and becoming more financially prepared isn’t solve everything this year or even the next.
But, preparation in any field breeds confidence, and that preparation will help alleviate the financial stress you’re under — even if it’s just dialing it all back a bit.