By being proactive in economic recovery, Mainers can mitigate the immediate impact of the pandemic on their finances and guard against a financial crisis in the future. Here are five tips to help you regain your financial balance during this time of continuing uncertainty and beyond:
1. Build an emergency fund
If people learned anything in March 2020, it was to expect the unexpected. Before the pandemic, nearly one in four Americans had no emergency savings, with 40% of Americans not having enough money to cover an emergency expense of $ 400. Unfortunately, financial woes seem to be more common than financial windfalls, meaning that an emergency fund can save the day when needed. According to a popular rule of thumb, you should aim to save between three and six months of expenses. In a medical emergency, job loss, car trouble, device failure, or even a global pandemic, saving money can be a big help. Not only can this keep you from stressing out over financial uncertainty, it can help you avoid resorting to loans or credit cards to stay afloat. If you can, consider automating your emergency savings. For example, if your goal is to withdraw $ 50 from your paycheck each week and add it to your emergency fund, adjust your payroll settings so that this amount is automatically transferred to an account at your credit union. Because the money is automatically transferred, you won’t be able to impulsively spend that money on something else and you will continue to grow your savings.
2. Take advantage of the pre-tax benefits
In keeping with the theme of having money set aside for future use, you should consider contributing to the pre-tax benefits if you can. If your employer offers health insurance, life insurance, 401 (k), health savings account (HSA), or flexible spending account (FSA), you should take advantage of it. These are all pre-tax benefits, meaning your employer withdraws money from your paycheck to pay for the benefits before withdrawing money to cover taxes owed on your income. For example, if you earn $ 40,000 per year, but have contributed $ 1,000 to your FSA
to spend on qualifying health care expenses, you should only tax on $ 39,000 instead of $ 40,000. If you’ve also contributed to a 401 (k) retirement plan and subscribed to a health insurance plan, you could further reduce your taxable income. Not only are you lowering your taxes, but many of these benefits help you save money for the future. Contributing to a 401 (k) can help you build your retirement nest egg, and the HSA and FSA can cover medical expenses. At times like these, peace of mind when it comes to managing healthcare expenses is priceless.
3. Pay off high interest debt
Paying off debt is an important step in regaining your financial balance. You should consider making a list of all of your debts, including how much you owe and what the minimum interest rates and payments are. Next, determine if you have any debts that are currently in a grace period due to the pandemic. If you do, use that money to pay off your high interest debt still owed. For example,
Federal student loan payments are on hold until February 2022. The money you would usually make a student loan payment with may be better used to pay high priority bills, such as a mortgage or rent. Since no interest accumulates on student debt until February, you will not be penalized for not paying your student loans at that time. However, a mortgage lender or homeowner may not be so forgiving. If you are trying to prioritize the payments you can afford to make, you should continue to pay the bills that don’t offer a temporary break on the balance of principal and interest. For example, if you have high interest credit card debt, pay it off first instead of continuing to pay off your student loan.
4. Reduce non-essential expenses
How many 30-day free trials did you sign up for and forgot to cancel? Do you go to the gym often enough to justify your monthly membership? Take a look at your recent cash statements and figure out exactly what you’re paying each month. The costs of TV packages, magazines and other subscriptions add up and can get more expensive than expected. If you don’t take advantage of it, cancel it. If you use the services, do some research to see if there are cheaper alternatives. By taking a few minutes to assess where your money is going, you can avoid spending more than you need to and use those funds to improve your financial situation.
5. Ask for help
Finally, ask for help. As the pandemic has resulted in increased isolation and the perception that people should do everything on their own, it’s important to know that we’re all in the same boat. If you have questions about getting your financial situation back on track, contact your local credit union for help. The goal of all Maine credit unions is to help you be successful.