The COVID-19 pandemic has left many in precarious financial situations. However, there are a few ways you can head off serious financial problems before they start.
Many people have been reaching out to financial advisers for advice during this time. Kelly Browand, financial adviser with Edward Jones’s Cleveland office, said that is true for her.
“We think a recovery will take shape,” Browand said of the current economy. “But we are going to experience bumps along the way, and we need to focus on where we want to go.”
Common questions she has fielded have had to do with emergency funds, the Economic Impact Payment checks being sent by the federal government and more.
There are some common threads tying together the advice she and other financial advisers nationwide have been giving, including the importance of budgeting and saving.
The Economic Impact Payment has allowed eligible individuals to receive up to $1,200 and couples filing taxes together to receive up to $2,400 from the federal government. In addition, $500 is added for each of their children.
“We come into lump sums of money so rarely in life that it's worth pausing and deciding what would be the best use of that cash,” Browand said.
While it could be tempting to splurge on purchases like big-screen TVs, she said the No. 1 priority should be to cover everyday expenses like mortgage, rent or grocery bills.
Those who are not currently struggling to cover daily expenses should look at creating or adding to an emergency fund which would help cover expenses during tough times.
Browand said this fund should include three to six months of living expenses.
Figuring out how much to save in an emergency fund starts by creating a budget which outlines what your normal expenses are. This budget should include every necessity — housing, food, medical expenses and the like.
To create the budget, Browand suggested looking over the previous six months of expenses to gauge the cost of a typical month’s expenses.
Sticking to a budget can be difficult, but it is a surefire way to ensure you always have the necessities covered.
Browand suggests things like making grocery store lists to keep your budget in the black.
“This isn't our normal circumstance, but it just proves that sticking with a budget can help to boost your emergency fund in good times,” Browand said. “In those rougher times, it becomes even more critical that you stay on budget.”
She added those who are all set when it comes to emergency savings can look at saving for “short-term goals” — such as a vacation or a new car — or investing.
The next step for those satisfied with their short-term savings goals and investments is to look at long-term goals, like saving for retirement or a child’s college education.
“Long-term goals like education funding and retirement usually require diligence over a lot of years in order to achieve the goal,” Browand said. “These sort of market pullbacks that we're experiencing now can actually help [with personal discipline].”
In terms of investment strategy, she urged people to make sure they have a diversified portfolio as they save for retirement.
“Usually you either have your own individual options or employment options,” Browand explained. “But there are ways for you to get your own retirement plan if your employer did not have one for you.”
“Just because the market has pulled back some does not mean you stop having the long-term focus and the long-term goal,” she added.
At the end of the day, the most important thing is to make sure you have all your daily spending covered. Then, it is good to have an emergency fund to fall back in the event normal income sources go away.
When your financial situation is stable enough to have a good amount set aside for emergencies, that is the time to start working toward goals.
There are many people who have already found themselves in financial distress. However, doing things in that order, starting with prioritizing needs over wants, can help as people work their way toward financial stability.
Though we are living in uncertain times, Browand said “the bright side” is that more people are getting into the habit of budgeting and saving for future goals.
“It could be an exciting time to help us focus on what is really important and what we really need — and help prevent feeling vulnerable in the future,” said Browand.