By being proactive about economic recovery, Mainers can lessen the immediate impact of the pandemic on their finances and safeguard themselves against a financial crisis in the future. Here are five tips to help you regain your financial footing during this ongoing period of uncertainty and beyond:
1. Build an Emergency Fund
If people learned anything in March of 2020, it was to expect the unexpected. Prior to the pandemic, nearly one-in-four Americans had no emergency savings at all, with 40% of Americans not having enough money to cover a $400 emergency expense. Unfortunately, financial misfortunes seem to be more common than financial windfalls––meaning an emergency fund can save the day when needed. According to a popular rule of thumb, you should aim to save away between three-and six-months’ worth of expenses. In the event of a medical emergency, job loss, car troubles, a failing appliance, or even a worldwide pandemic, having money saved away can be a huge help. Not only can it prevent you from stressing out about financial uncertainty, but it can help you avoid turning to loans or credit cards to stay afloat. If you can, consider automating your emergency fund savings. For example, if your goal is to take $50 from your paycheck every week and add that to your emergency fund, adjust your payroll settings so that amount automatically funnels into an account at your credit union. With the money being automatically transferred, you won’t be able to impulsively spend that money on something else and you’ll continue to grow your savings.
2. Take Advantage of Pre-Tax Benefits
In keeping with the theme of having money set aside for future use, you should consider making contributions to pre-tax benefits if you can. If your employer offers health insurance, life insurance, a 401(k), a Health Savings Account (HSA), or a Flexible Spending Account (FSA), you should take advantage of them. 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 contributed $1,000 to your FSA
to put toward qualified health care expenses, you’d now only owe taxes on $39,000 rather than $40,000. If you also contributed to a 401(k) retirement plan and enrolled in a health insurance plan, you could further reduce your taxable income. Not only are you reducing what you’ll owe in taxes, but many of these benefits help you set aside money for the future. Contributing to a 401(k) can help you grow your retirement nest egg, and HSAs and FSAs can cover medical-related expenses. During 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 footing. You should consider making a list of all your debts, including how much you owe, and what the interest rates and minimum payments are. Next, determine if you have debts that are currently in a grace period due to the pandemic. If you do, then use that money to pay your still-due high-interest debt. For example,
You should consider making a list of all your debts, including how much you owe, and what the interest rates and minimum payments are. Shutterstock
federal student loan payments are in forbearance 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. With no interest accruing on student debt until February, you won’t be penalized for not paying your student loans at this time. However, a mortgage lender or landlord may not be as forgiving. If you’re trying to prioritize which payments you can afford to make, you should continue to pay the bills that are not offering a temporary pause on both the principal balance and interest. For example, if you have credit card debt with a high interest rate, pay that off first instead of continuing to make student loan payments.
4. Cut Back on Non-Essential Spending
How many 30-day free trials have you signed up for and forgot to cancel? Are you going to the gym often enough to justify your monthly membership fee? Examine your recent credit union statements and figure out exactly what you’re paying for every month. The costs of television packages, magazines, and other subscriptions add up, and can become more costly than you anticipated. If you aren’t taking advantage of it, cancel it. If you utilize the services, conduct some research to see if there are cheaper alternatives. By taking a few minutes to assess where your money is going, you can save yourself from spending more than you need and use those funds to improve your financial situation.
5. Ask for Help
Lastly, ask for help. While 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 this together. If you have questions about regaining your financial footing, contact your local credit union for assistance. The goal of all of Maine credit unions is to help you succeed.
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