Has Covid-19 cut into your finances? While there’s no telling when the pandemic will be over, a new year is here. Use it to rebuild not just back to where you were before, but to better than before.
For some, that might mean scoring a new job. But even many who haven’t lost income during the pandemic are struggling with uncertainty and unforeseen expenses.
Are you among them? Take these eight steps to strengthen your finances in 2021:
- Deflate your debts
When it comes to personal finances, being debt-free is at the top of everyone’s wish list. Debt is a ball and chain that prevents you from taking risks and reaching for opportunities.
Finance guru Dave Ramsey’s seven baby steps are a great place to start. Ramsey’s second step to financial freedom, after building an emergency fund, is to pay off all debts other than your mortgage.
Focus all your excess income on your highest-interest debt. Once you’ve paid it off, shift to the one with the next-highest rate. Avoid adding new debts by using a debit card rather than putting purchases on credit cards.
- Prioritize your savings
Debt is just one piece of the puzzle. Don’t forget to give your savings fund some extra love this year.
Start with an emergency fund. Experts say the golden rule of emergency funds is at least three to six months’ worth of expenses. If keeping a little more in your emergency fund is what it takes for you to feel secure, go for it.
Once you’re protected from emergencies, set up separate accounts for other savings goals. You might set up one fund for the kids’ college expenses, another for a new car, and a third for vacation.
- Minimize discretionary spending
A great way to free up extra money for savings or debt repayment is to reduce your discretionary expenses. Chances are, you spend more on things like entertainment and eating out than you realize.
Start with subscriptions. Are you actually using your Netflix membership? What about Hulu and Disney+? If you’re shaking your head “no,” then go ahead and cancel them. Monthly payments might seem small, but they add up.
Another important one is gifts. Although it’s important to be generous, what’s more important is your household’s financial stability. Take care of others after you take care of your immediate family.
- Rethink your living expenses
If you’re healthy, most of your spending is concentrated in three areas: food, transportation, and housing. Although you can’t simply go without food or a home, there are ways you can cut back in each area.
For example, if you shop at a premium supermarket, look at discount options supermarkets in your area. In the housing category, consider adding a roommate or moving to a less expensive part of town. And if you can ride the bus or bicycle to work, you’ll spend less on gas and may even be able to sell your car.
- Look at refinancing opportunities
If your expenses are still higher than you’d like them to be, consider refinancing. You can refinance a home loan, an auto loan, student loans, or basically any other form of debt.
Refinancing involves taking out a new loan to pay off and replace the first one. While it may sound pointless, it can lower your monthly payments by extending the repayment timeline or interest rate associated with a loan. Make sure you shop around and find the lender offering the best terms before making a decision.
- Spend your stimulus check wisely
You should be smart about every penny you earn right now, and that includes your latest government stimulus check. Avoid impulse purchases by making a plan for it now.
Have you been putting off a filling? Dental work only gets more expensive the longer it’s put off. The same is true of car and home repairs. Letting your roof leak will eventually damage the drywall ceiling and rot the timbers in your attic.
If you’re otherwise in good shape, save or invest your stimulus check. You never know when you’ll need it. You might as well let it grow in the meantime.
- Invest what you can
Speaking of, investing is a great way to build your finances once you’re otherwise comfortable. Put your eggs in as many baskets as you can. A diversified portfolio lowers your risk while letting you capitalize on compound growth.
Compare the typical savings APY to inflation-adjusted market returns. Generally speaking, you’ll make 5-10 times as much money investing your money as you would saving it.
With that said, don’t invest any money you aren’t prepared to lose. Markets can drop on a dime. You don’t want to log into your brokerage account one day to find out you’ve lost your life savings.
When in doubt, talk to a financial advisor. Make sure your portfolio aligns with your risk-reward tolerance. If you’re willing to take more risks, you could make more money. Unfortunately, you could also lose more money — and that might not be worth it in your financial situation.
- Put off having kids
There’s no way around it: Kids are expensive. The average middle-income, two-parent family can expect to spend nearly a quarter of a million dollars raising a child from birth to 18. Sending them to college could almost double that tab.
If you were thinking about starting or expanding your family in 2021, it might make sense to wait until the economic situation has stabilized. Imagine losing your job just after your child is born — when you’re likely to be facing five figures’ worth of medical bills.
Whatever your current financial situation, improving it is no easy task. You know what you need to do: set a budget, pay down any debts you might have on your shoulders, and build up your savings. Keep your expenses low until the economy improves.
Don’t look at the pandemic as a setback; instead, think of it as a fresh start. If you get your finances in order, it can be.
(Syndicated press content is neither written, edited or endorsed by ED Times)
Read more:
Kerala’s Festival Of Thaipusam Ritualises Extreme Forms Of Body Modification
