Unprecedented times like the pandemic caused major financial turmoil for virtually everyone. With business stopping their operations and people out of work, it can be hard to commit to the best financial practices.
How else can one budget effectively and save regularly when we are experiencing a recession?
It is still unclear when we can ever go back to normal. Despite the number of approved vaccines being handed out each day, no amount of vaccine can cure one’s financial hardships.
The good news is, even with the pandemic, there are steps you can take to start your road to financial recovery. Here are four things you can consider doing so you can start putting your personal finances in better shape.
Considering Refinancing
Refinancing your mortgage can be a great way to trade your old home loan with one with better terms and interest rates. Note that you should only do this if you can find a lender that can give you the best mortgage rates and terms. This could mean refinancing with the same lender or finding an entirely different lender.
The same goes for refinancing your car. This also involves taking in a new car loan so you can pay the existing balance and reduce your financial burden. You have the option to find one that offers a more favorable rate or one with smaller monthly payments in exchange for longer repayment periods.
Take a hard personal financial check and see if refinancing your loans does make sense. You want to make sure you can save more or achieve new monthly rates you can comfortably afford each month. If you made them take of taking out a loan you can no longer afford, then it makes sense to find a lender who can offer better rates and terms.
Pay Off Debts the Soon as possible
Your first priority is to pay off any debts you have incurred these past few months. This can include your credit card debt, any missed payments you have with your landlord or mortgage lender, or even your retirement account loans. If you now have a job, make sure you set aside enough money to pay for these.
If you managed to receive a stimulus check, choose from your immediate bills and pay them ASAP. Ask your creditors about leniency. This will help you understand which ones you ought to pay first and which ones are willing to create a penalty-free payment deferral.
Did you receive any tax refunds? Now is the best time to put them to good use. This extra income will give you some buffer to pay off some of your debts. Make sure you talk to your lenders or creditors about your financial setback and ask if they can offer other payment options.
Start Rebuilding Your Emergency Funds
If there is one thing for sure, this pandemic is not the only financial crisis we will be facing. You could end up losing your job, your business could fail or you might be unable to work in the near future. No one knows what can happen tomorrow, making it a must that we come prepared for whatever is yet to come.
Start saving money meant for emergency funds alone. If you have a stable income, aim for at least six months of savings that can pay for your living expenses and bill payments. For those with an unstable income, it is advisable that you start building one year’s worth of emergency funds.
Aside from saving enough cash to cover emergencies, make sure you update all of your insurance policies, especially your health insurance. You want to make sure each is updated depending on your current needs. This will give you and your family enough peace of mind in case anything unexpected happens.
Aim for a Retirement Account
Some people had to tap into their 401(K) savings during the crisis. If you are one of them, make sure you pay your withdrawals as soon as possible. Retirement may be the last thing on your mind right now considering our current situation. But your retirement years will come unless something bad happens even before you reach your senior years.
The good news is the CARES Act ensures you won’t have to worry about the 10% early distribution penalty for tapping on your retirement funds so early. You will still pay the income tax depending on how much cash you withdraw. But if you can manage to pay it back within three years, then you are safe from the tax.
Make sure you also start saving for your retirement. You want to make sure you can enjoy a healthy and financially worry-free retirement by saving enough funds.
The cost of living will continue to rise, meaning you will need to make sacrifices now so you can enjoy a better retirement. Adequate planning and budgeting is the key to achieving better personal finances.
You want to make sure you pay for your dues, reduce your payments, and save enough for emergencies and the future. The earlier you start taking your personal finances seriously, the earlier you can start making the right choices.