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Many people are adjusting to a ‘new normal,’ but what if your new normal means your financial situation has suddenly changed? You’re not alone. A major consequence of the COVID-19 pandemic for many households has been a reduction or loss of income. It’s never easy to adjust to a more restrictive financial situation, however, there are a few things you can do now that can allow you to weather financial turbulence and come out stronger down the road.
Review your finances
You may already have a clear picture of your overall financial situation. However, if you haven’t yet taken the opportunity to sit down and review your finances and budget in more detail, now may be the perfect time to do so. List all your expenses and identify opportunities to save, whether through refinancing debt, researching or negotiating cheaper options, or by trimming nonessential expenses you may identify. This may also be a good opportunity to take a step back and think about your priorities in terms of how you spend your money – you may find this new approach alleviates stress and emphasizes what’s most important to you.
Once you have done all this, make a detailed budget that prioritizes your key financial responsibilities—and stick to it. Record and analyze your spending regularly to identify any further opportunities to save money. For more practical tips on dealing with financial pressures, see our article on ways families can prepare for the unexpected.
Marshalling your resources
Once your financial house is in order, be sure to seek opportunities to make the most of your assets, both tangible and intangible.
Taking stock of your tangible assets, including long term savings accounts like retirement or investment accounts, short term savings accounts like a checking account or emergency fund and even vehicles or real estate can all be evaluated to see how each might supplement your cash flow.
At the same time, think of your own skills as an intangible asset. The gig economy is exploding, so perhaps consider turning your hobby into a business or putting your professional skills to work in a side gig. You can find plenty of advice on starting a small business online from organizations such as the U.S. Small Business Administration.
If you have some spare time—particularly if you find yourself temporarily unemployed or working fewer hours—consider investing in education and re-training to improve your earning potential. Take time to research and consider future employment trends, then consider how best to adapt your skillset to improve your employability and chances of progression.
Finally, don’t forget to seek out financial support that may be available to you. As an individual you can find useful information on the Consumer Financial Protection Bureau and IRS websites. Meanwhile, if you run a small business there are various new programs under the CARES Act which may help you.
Consider adjusting your financial strategy
In the face of financial stress, it may be tempting to divert as much money as possible towards paying off your debts. Our own research shows that 72% of parents prioritized debt reduction well before the COVID-19 pandemic erupted. However, it’s important not to rush to pay off debt at the expense of saving for your future, especially as interest rates are creeping even lower and payment deferrals and other measures may be available. If you have credit card debt, look up your current interest rates and figure out if it’s worth prioritizing certain debts that remain high and are adversely impacting your credit.
Only change your long-term financial planning as is necessary. Continue to keep sight of your long-term goals and continue to save and invest if you can, even if it’s only small amounts. Certain expenses, such as gas, childcare and dining out, have actually decreased for many households during the pandemic. If you are fortunate enough to still be employed and are still at full salary, consider using those extra funds to boost your savings.
If you do need to make changes that could impact your long-term financial wellbeing, consider consulting a financial professional. Review your situation regularly and adjust your saving upwards as soon as you can. Set clear short, medium and long-term goals and enjoy the delayed gratification from being able to stick to them and maintain your financial trajectory.
Finally, ensure you have appropriate life insurance coverage in place that reflects your ongoing situation and ensure that your family is protected (you can find more information about life insurance options here).
It’s never easy to have to adjust your financial circumstances, but taking action now can be a positive and empowering step—one that can literally pay dividends in the long run.
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