In these unprecedented times, many families are facing financial uncertainty. Here we offer seven tips for how to deal with today’s unexpected financial pressures, and be better prepared for the future.
1. Start an emergency fund
Managing the family finances from day to day is hard enough. Building up your savings may seem an impossible dream. But having an emergency fund provides peace of mind in times of uncertainty. Put away what you can, even a little at a time, in an interest-bearing account. This should cover the basics in times of need, such as paying the bills during a period of unemployment, or emergency expenses like medical bills, and saves you from using credit cards or accessing your retirement funds. The most common advice is to set aside enough to cover three months’ worth of living expenses – or, in times of uncertainty, even more. If you own your own business or are an independent contractor, plan on at least six months of living expenses.
2. Consolidate your debt
Saving is one thing, but what if you have debts to deal with? If you have multiple debt accounts such as loans and credit cards, consider consolidating your debt. This means combining your various debts into one simplified monthly payment. You may be able to lower your cost of credit by consolidating your debt through a home equity loan or home equity line of credit - but it's vital to keep in mind that these are secured loans that could even require you to put up your home as collateral.1
3. Tap your 401(k)
Before the COVID-19 pandemic, your financial professionalwould advise against dipping into your retirement savings to meet a financial shortfall because of the penlalties involved. If you're aged below 59½, cashing out your employee-sponsored retirement account meant a 10 percent penalty of the distribution, plus at least 20 percent automatically withheld for taxes.
But thanks to the CARES Act (Coronavirus Aid, Relief and Economic Security Act), you can now access up to $100,000 from your 401(k) - and 403(b) - with no penalty. What's more, the Act also waives required minimum distributions from retirement accounts this year.2 Tapping your retirement cash is still a last resort but, if you don't have any emergency funds, it is an option. But be extra careful to take out what you absolutely need, and pay back the amount within three years. Find out more here.3
4. Save on spending
During this period when so many people are having to self-quarantine, your level of ‘non-essential’ spending will be less than normal. From drinks out with friends, to vacations, to dining out at restaurants—not to mention the gas in your car to get you there—all of those expenses have likely dropped substantially. But now is a good time to have a close look at your spending. How many times did you visit that expensive restaurant? You spent how much? Plan to reduce your spend on these outings in future. Perhaps visit that restaurant once a month instead of once a week. You never know, it might just make it more special.
5. Save on bills – and even make some money!
Saving money isn’t just about cutting back your spending! Get savvy and you could also cut down your household bills. Review all your accounts, from banking to broadband, and see how much you could save. For example, could you renegotiate your monthly cell phone bill? You could even make a little bonus cash by switching bank accounts, or referring a friend, if a provider is offering a reward scheme. Also, see what stores are offering promo deals and money-off coupons. Whether you're making a small purchase from a low-cost retailer, or you're spending big dollars at a high-end shop, lots of stores allow you to use a coupon or promo code that'll help you save money on whatever you buy.
6. Protect their future
Protecting your family - their finances, and their well-being - is always a priority. But, are you sure you have enough protection? Life insurance is the safe foundation of a protection-first financial strategy and it’s important to ensure that the coverage you have is adequate for any change in circumstances, so your family is protected as much as possible. Beyond basic health insurance, you may wish to consider life insurance to protect your loved ones and secure their future.
7. Take the long view
You may need to make difficult short-term decisions about money in these challenging times, such as temporarily minimizing or pausing longer-term debt pay-offs. But it’s vital not to lose sight of the long term. You may have to adjust your plans temporarily, but having a solid plan in place for the family’s financial well-being, whether saving for your retirement or the kids’ college fund, is the best way of being prepared for the future.
1 USA.gov. “Dealing with Debt.” https://www.usa.gov/debt#item-36577
2 U.S. Department of the Treasury. “The CARES Act Works for All Americans.” https://home.treasury.gov/policy-issues/cares
3 Horton, Melissa. “Can I Take My 401(k) in a Lump Sum?” April 23, 2020. https://www.investopedia.com/ask/answers/081815/can-i-take-my-401k-lump-sum.asp
Go back to our newsroom to read more stories.