Family Financial Savings and Planning During Economic Hardship
Posted on May 30, 2023 by CHS
The COVID-19 pandemic and global events have affected people in many different ways. One significant impact has been to the change in financial stability that many people are experiencing. During periods of economic hardship, there are things you can put in to practice to minimize the effects of significant or sudden changes to your financial situation. The following tips and resources will help you create a financial plan to support you and your family.
Create and Maintain a Monthly Budget
Create a new monthly budget while maintaining a realistic expectation of your spending. Budgeting apps like EveryDollar, Mint, NerdWallet, and others can help you create a budget and track your spending. Begin by assessing your income and bills. Record how much you earn and how much you are spending on your bills. Subtract the amount you spend from the amount you earn to determine how much money you have after your monthly bills have been paid. Reserve a portion of any remaining income as savings, and the rest can be allocated as you see fit. Keep in mind that your budget does not have to feel permanently restrictive. You can reassess and adjust your budget as needed and as situations change. Remember that your budget is just that: yours. It is important to understand which bills you need to pay and where you may be able to lower your expenses. As you create your budget, keep the following in mind:
- Pay your rent, mortgage, car payments, and utilities on time. Late payments can result in late fees and can impact your credit core.
- Look for ways to reduce your usage of certain utilities.
- If you have student loans or credit card debt, explore working out a payment plan. Be sure to ask questions regarding any penalties or outcomes resulting from beginning a payment plan.
Adjust for Inflation
When dealing with inflation, your budget may need to be adjusted due to increased prices for goods and services. For example, inflation has caused gas and grocery costs to increase. Reflect on your spending habits and your budget. Is there anything that you can cut out or reduce? Are the items you plan to purchase things you truly need?
There are some creative ways to save money, such as meal planning, buying generic products, or buying groceries in bulk. Be specific about what you want to buy, and ask yourself whether the item is necessary. Lower your electricity bill by limiting your use as much as possible, such as by turning off the lights when you leave the room or running appliances in the evening instead of during peak hours. Reassess your current subscriptions, memberships, or cable/streaming services to evaluate if they are needed at this time. Your local Resource and Referral Program can also help you find assistance programs for paying utilities and accessing other free or low-cost services. During periods of high inflation where your dollar does not go as far as it used to, being mindful about where you spending your hard-earned money can be a great help.
Minimize Spending and Set a Financial Goal
When natural disasters or economic downturns happen, adjusting your spending can help you to ensure you are still able to pay your bills. Consider cutting out or replacing non-essential spending, such as eating out or entertainment for a period of time while you complete a financial goal you have in mind. For example, your financial goal could be to pay off debt or build your emergency fund. You might opt to swap a night at the movie theaters for an at-home movie night with popcorn, pajamas, and movie trivia. Another strategy to minimize pending is to try using a cash envelope system if you have difficulty keeping spending at bay. This system allows you to make all purchases with cash only and monitor exactly how much money you spend. You can learn more about the cash envelope system here.
Build Your Emergency Fund
An emergency fund is a cash reserve or bank account for significant, unexpected expenses such as home repairs, auto maintenance, medical bills, or loss of employment. Within your budget, it is recommended that you include monthly contributions to your emergency fund. Some recommend saving up between 3 to 12 months of your monthly expenses to ensure you are covered for any unexpected changes in your financial situation. Regardless of how much you can set aside comfortably, an emergency fund helps you feel less stressed when unexpected expenses arise. Additionally, consider putting your emergency fund in an account where you can earn interest on your money. There are many different options, such as a high-yield savings account, money market account, certificates of deposit, etc. Review your options and which one might be best for your financial needs. Visit this webpage to view a few of the many options available, or speak to your bank’s financial advisor.
Pay Off Outstanding Debts
Review your outstanding debts and ensure you are at least making your minimum payments. You will have more disposable income when you can pay off your debts. Additionally, when debts accrue interest, they just grow over time. You may also be able to add more money to your emergency fund or have more income to complete your financial goals when debts are paid off. One way to help you pay off your debt sooner is to pay more than the minimum monthly payments, also known as the debt “snowball” or the debt “avalanche” method. This webpage includes additional tips and strategies to help you lower your debt.
Insurance and End-of-Life Considerations
Ensure you have adequate homeowner, renter, and automobile insurance. Adequate insurance protects you from unexpected expenses that may arise. For example, if you were to have a car accident and suffer an injury, you would have unexpected automobile and medical expenses. Consider obtaining a life insurance policy. The pandemic put end-of-life considerations at the forefront of people’s minds. A life insurance policy may give you peace of mind knowing that your child(ren) and family will be protected from financial loss if something happens to you. A will or an estate plan may also be necessary to plan for the distribution of your assets or arrange guardianship for your child(ren).
Many people may have deferred debt payments during the pandemic. Unfortunately, this may mean that you are now spending more money as debt payments may now be due. Additionally, as entertainment and travel industries have picked up again, you may find yourself wanting to “make up for lost time.” With a little creativity, this can still be possible while remaining within the spending limits you set forth in your budget. You can do many things to help you resist spending more, such as unsubscribing from all retail emails you receive or shopping in person rather than online. This helps you to stop impulse buying and only buy what you actually need. Consider low-cost or free entertainment such as spending the day in a park, renting movies or books from the public library, playing board games at home, or trying a staycation.
Avoid “Buy Now, Pay Later”
“Buy Now, Pay Later” companies offer zero-interest payment plans for many purchases. These options may sound appealing but can easily lead to negative consequences if overused or mismanaged. Paying in full for any purchases you may want or need is the best way to avoid debt. If you are considering using a service like this, ensure that the items you purchase are essential. You do not want to find yourself in a situation where an emergency purchase cannot be made because you have already made other purchases that were not as necessary. These services can also provide a false sense of how much you are able to spend. Once again, review your budget and assess where you can spend.
Financial planning during an economic downturn can be stressful; however, it does not have to be. Remember to start by assessing your income and expenses to help you create your budget. As you take this first step and stay on track, you can make positive changes and position yourself to minimize the impact of a significant financial shift. The references and resources below can help guide you through the process of taking control of your finances.
References and Resources
10 Tips on Post-Pandemic Spending – article by AARP
7 Dangers of ‘Buy Now, Pay Later’ Apps — and How to Avoid a Debt Trap – article by the Penny Hoarder
Best Places to Keep Your Emergency Fund – article by Forbes
Do you need an estate plan? – article by Fidelity
Emergency Fund: What It Is and Why It Matters – article by NerdWallet
How to Adjust Your Budget for Inflation – article by Ramsey Solutions
How to Avoid Post-Pandemic Overspending – article by Ramsey Solutions
How to Combat Inflation and Protect Your Four Walls – article by Ramsey Solutions
How to Save Money: 23 Simple Tips – article by Ramsey Solutions
Insurance as the First Step in Financial Planning – article by Forbes
Pay Off Debt: Tools and Tips – article by NerdWallet
Estate Planning, Wills, and Trusts – article by the California Attorney General
On a Budget? Try a Staycation this Summer – blog by CHS
Teaching Your Child about Managing Money – blog by CHS
Saving for my Child’s College Tuition – blog by CHS
How to Improve Your Credit Score – blog by CHS