The pandemic shifted our focus to health. Beyond working to protect our physical health, it emphasized the importance of financial wellbeing, too. More than 70% of Americans revisited their financial plans last year, and one in three made adjustments to that plan.
Ultimately, if you count yourself among those who feel an increased need to get your finances in shape — and ready to weather any future disasters — you are not alone.
Fortunately, financial planning experts have a myriad of tips you can use to set yourself and your family up for success.
- What the experts say
- What the surprise of COVID-19 has taught us
- Most common financial hardships during the pandemic
- How to be better prepared in the future
What the experts say
“Something I’ve heard a lot in the last year is: ‘Wow, I didn’t realize I spent so much money on ____ until I couldn’t do it anymore!’ No matter your financial situation, you should regularly audit your expenses and see if there are areas for improvement.
That said, there comes a point where you can only cut expenses so much. If you’re barely breaking even every month and you have financial goals like funding an emergency fund, you need to find a way to increase your income. One of the best ways to generate money quickly is to lean on skills and knowledge you already have. If you feel like you don’t have monetizable skills or knowledge, it’s never too late to learn. That ‘little’ hobby or side hustle that brings in a few bucks here and there can be invaluable in the face of financial disaster.”
Laura Beaulieu, VP of Marketing, Billshark
“If you’ve never negotiated your bills — like your cable bill or internet bill — there’s a 90% chance that you’re overpaying. There’s room to negotiate with your providers. They would rather keep you as a customer than lose you to a competitor.”
Lindsay Bryan-Podvin, LMSW, Financial Therapist, Mind Money Balance
“Pad your emergency savings account… A lot of those little ‘whoops’ expenses are no longer there. You aren’t waiting in line at Target, throwing a couple of magazines into your shopping cart. You aren’t grabbing that coffee on the way to the office. You aren’t meeting up with friends for a drink and appetizers. Those types of expenses have effectively disappeared, decreasing a lot of extraneous spending and making it easier to save. I think for many people, the thought of ‘giving up’ some of those expenses pre-pandemic seemed impossible, but now, folks are seeing that it might not be as hard as they’d imagined to give them up.”
Kelan and Brittany Kline, Founders, The Savvy Couple
“In order to be prepared for the future financially, you need to have an emergency fund established. This could range anywhere between $1,000 to 3 to 6 months of your monthly income. This would allow you to continue to cover your monthly expenses while looking for another job or supplemental income. This will give you some peace of mind during an already stressful situation.
Another money-saving tip is to ask for a discount or negotiate what you are looking to purchase. The worst someone could say is no, but after the year that we had, everyone is looking to give grace to different situations.”
“We’d recommend building your emergency savings up to six months of expenses eventually, but at least have something put away for a rainy day. No matter your level of income or liabilities, you must make savings a priority to ensure you can cover yourself in the case of financial hardship.”
Stephanie Nicolette, Resource Navigator, Family Reach
“Tips we have found helpful:
- Explore what programs you might qualify for through your mortgage or utility companies. Call and ask what they might be offering for your current situation and if they can help.
- Contact vendors or billing departments to see if you can set up an interest-free payment plan.
- Ask your healthcare team for resources on a specific cost, such as parking at the hospital or meal vouchers.
- Learn the laws that can help you and try to review policies that apply to you — such as regarding student loans.
- Explore where you can cut costs or lower your expenses. This could include canceling subscriptions or memberships you aren’t using.”
Kevin Panitch, Founder, Just Start Investing
“The best way to save big chunks of money is to limit your expenses on housing and transportation. This is where most Americans spend the majority of their money and, therefore, where they have the most room to save, too.”
“It is essential to keep track of where you are spending your money. My husband and I went through the expenses section of our budget line by line and eliminated any items that were not necessary. I did the same thing with my business financial plan. If any expense wasn’t directly or indirectly leading to profit, it was deleted.
Consider adding additional streams of income.”
Kelley Long, CPA/PFS, CFP®, Financial Coach, Wealthtender
“The objective in any financial disaster is to get through it with as little long-term damage to your financial picture as possible. So if you lost your income for a bit, trying to keep yourself in a place so that when you have income again, you’re not playing catch-up for months to come. That means a combination of having savings in place to pay bills while also doing your best to limit financial commitments that can’t be quickly paused or canceled if a future hardship arises.
Another place people get trapped is with payday loans, which can quickly drive you to bankruptcy. Before you resort to committing future paychecks to past expenses, work with your creditors and bills to see if you can pause payments or get a payment holiday. The faster you’re able to take your monthly expenses down when disaster strikes, the easier it will be to get through the disaster and recover quickly on the other side.”
Kristen Dillard, Director of Product Management. Quicken/Simplifi
“Pay yourself. It’s the age-old advice and one of the most important tips — don’t spend more than you make and save, save, save. You should always have an emergency fund, rainy day fund and retirement savings account. Don’t wait for money to be left over at the end of the month to sock away for your rainy day — pay yourself first. Ten percent is a good rule of thumb, but if you can’t scrape that together, start saving what you can. Setting up automatic contributions into your savings makes the task even easier… Virtually every financial institution gives you the option of having money automatically deducted from your checking account to your savings or investment account.”
What the surprise of COVID-19 has taught us
If we take just one thing from the pandemic, it will probably be this: we need to be prepared for anything. Very, very few people were ready for the world to turn on its head. We would never have predicted the widespread job loss — let alone the collapse of entire industries — almost overnight. Even economic pessimists likely did not assume that a major economic shutdown would come hand-in-hand with school closures and increased medical expenses for many Americans.
The silver lining of this very dark cloud is that many people have started to put more thought into preparing for life’s what-ifs. Now, we know that even if something seems extremely unlikely to happen, we are still probably wise to be ready for it.
It’s a good idea to gather information to educate yourself on where preparation might help you be ready if you face another disaster.
Most common financial hardships during the pandemic
The pandemic brought about a broad range of financial challenges. Many families experienced hardships like never before. Here are a few of the most common hurdles families have had to navigate in the last year.
- Job loss. As 2020 wrapped up, we saw more than 22 million jobs lost because of the pandemic — and it could take years for unemployment numbers to drop back down to pre-pandemic levels. Specific industries like restaurants, hospitality and live events have been particularly hard hit. If you were one of the millions of Americans laid off during this disaster, you have probably felt some enormous financial strain. We can now see the light at the end of the tunnel. As the economy bounces back, you have the opportunity to explore new roles and industries. Exploring your interests and strengths may help you find a new role in the coming months.
- Reduced hours. While some lost their jobs entirely, many saw their hours reduced. The data for reduced hours is hard to track, but we can safely say that many across the country felt the sting of fewer hours — and the resulting reduction in income. If you saw your hours slashed during the pandemic, consider exploring a side job. Our research shows that your side hustle can help you bring in as much as $8,000 annually.
- Loss of childcare. Pandemic-related disruptions in childcare accounted for a whopping $1 billion in annual losses. With schools closed, many parents have felt the strain of figuring out how to keep their kids safe and focused on their remote schooling while juggling their job responsibilities. In fact, 700,000 parents quit their jobs to care for their children. Fortunately, school reopenings should help to ease this challenge soon.
- Business closures. Employees have suffered in the last year, and business owners have, too. Nearly 100,000 businesses permanently closed because of COVID-19 and its variants. Business owners are probably far from thrilled about the prospect of starting from scratch to build their business again, but remember this: if you were a business owner, you have already done it once. You can apply the lessons learned this time around.
- Inability to pay mortgage or rent. 15 percent of adult renters (an estimated 10.7 million adults) were not caught up on rent as of March 2021. As many as 9.5 million adults are in a household not caught up on its mortgage payment. While many areas implemented programs when the pandemic hit to forestall eviction or temporarily pause rent and mortgage payments, many of those programs are now coming to an end. If you are renting or have a mortgage and are still unemployed or struggling financially, try reaching out to your creditor to see if you can work out a payment plan.
Clearly, Americans were hit hard from virtually every side in the last year. Ultimately, it highlights just how important it is to financially plan for life’s what-ifs.
How to be better prepared in the future
After a financially challenging year, you probably want to do everything you can to pad your savings to be better prepared for a future disaster. As this pandemic showed us, we can neither predict what the future will bring nor the scale of difficulties we may face.
Proper financial planning can make all the difference in not just your bank account balances but also in your mental wellbeing. Based on the expertise from the financial planners with whom we spoke and guidance from recognized organizations, here are three things you can do to be better prepared in the future.
Build your emergency fund.
Nearly every single one of the financial planning experts with whom we spoke mentioned an emergency fund. This is essentially a rainy-day fund, the money you put away for expected situations, like, say, a global public health crisis that shuts down pretty much everything.
Experts say you should aim to have between three and six months of expenses in your emergency savings. That may seem like a daunting amount, but you can start small and slowly build your account over time. We have some tips to help you get started.
Review your budget and spending
Many of the family financial planning experts we interviewed for this piece said they helped clients get control of their budget in the last year by carefully reviewing it. To start, set aside some time to go line-by-line through your bank and credit card statements from the last few months. This can help you identify trends and potential places to save. Some of our subject matter experts said they had clients who were surprised to find they were still paying for a subscription they thought they had canceled, for example.
Once you better understand your spending habits, you will be in a much stronger position to build a budget that actually works for your lifestyle. We have several resources you can leverage here:
Evaluate and negotiate your recurring expenses
As you look at your recurring expenses, decide what you need. While one or two streaming services might be critical, you probably can part with any beyond that, for example.
While nixing some unnecessary smaller bills can certainly help you pocket some money, bigger savings come with steering clear of bigger costs. Leasing a luxury vehicle might be tempting, for example, but choosing a mid-range option will keep more money in your pocket and probably help you save on insurance costs, allowing you to save or invest. If you rent, the same goes for housing. Think about your must-haves and look for rentals that meet those needs without paying for things you do not need.
Once you decide which regular expenses need to stay, evaluate each. Some, like cable, streaming and internet services, may be negotiable. Call your provider to see if they will offer you a lower rate to prevent you from leaving for another provider.
Other bills are fairly hard-and-fast, but you can still take strides to minimize them. We have tips to help you save money on your utility expenses, for example.
Ultimately, the last year has resulted in many Americans thinking more about financial planning. If you only do one thing to protect your family’s future in the face of another disaster, make it building a robust emergency fund.