How to prepare your finances now that things are opening up
A man pays at a coffee stall. The US economy is showing signs of recovery. That could also mean spending more money on activities that people may not have done in a while -- like going to the movies
By Jazmin Goodwin, CNN Business
It’s been more than a year since the pandemic started, and the US economy is showing signs of recovery. Covid-19 vaccinations are rising, states have lifted some pandemic restrictions and many travelers are back on the road.
While Americans are eager to kick-start post-pandemic life, that could also mean spending more money on activities they may not have done in a while — like going to the movies, dining out or taking a vacation.
But before you decide to open your wallet, there are a few things you should do to prepare your finances.
1. Revisit your budget
As life slowly starts getting back to normal, take the time to understand where you are financially. That means taking account of what you own and what you owe.
Shelly-Ann Eweka, a senior director of financial planning at TIAA, suggests reviewing older bank and credit card statements, retirement and investment accounts and your monthly bills and expenses.
“You want to understand how certain purchases and expenses are going to impact your future, but also your financial goals,” said Eweka.
Be sure to review your paychecks to understand how much income you’re bringing in and if you’re optimizing any tax or employer benefits available to you. For example, checking your eligibility for the federal Child Tax Credit or if your employer offers a match of your 401(k) contributions.
From there, you can start to reassess your budget. An example of this could be reallocating your funds toward spending on things like food or household items, or pinpointing ways to curb your spending.
You should also anticipate new expenses and former expenses that were put on hold during the pandemic, like travel or childcare.
“If you plan to start spending on something that’s been on the back burner while you were stuck at home, that money will need to come from somewhere else in your budget,” said Vadim Verdyan, head of advice at Albert, a personal finance app.
2. Fine-tune your financial goals
Your budget isn’t the only thing you’ll need to revisit.
You should also take a long hard look at your financial goals to determine if they align with your financial situation and expectations.
“You really have to balance your future self with your present self,” said Eweka.
The pandemic may have forced you to put off financial milestones, such as buying your first car or buying a home. Or perhaps, you tapped into your savings to help pay off debts.
Whatever your financial situation, after readjusting your spending and saving with your newly created budget, you’ll also need to reevaluate your goals and prioritize what is most important.
“As things get back to normal, we have a good opportunity to hit reset on the way we spend,” said Verdyan.
Verdyan recommends listing your goals under short-term and long-term columns to help you visualize which financial goals to prioritize first.
Some common goals include saving up for retirement, establishing an emergency fund, paying off credit card debt or starting a business.
Once you’re clear on your financial goals, you can make certain you’re spending and setting aside savings to meet those goals accordingly.
3. Use debit or cash instead of credit cards
It might be tempting to want to swipe your credit card for certain purchases, but if you’re not careful, you could end up with a massive pile of debt.
“Credit cards should only be used if you can make the full payment every month,” said Adam Deady, a certified financial planner at MassMutual. “If that isn’t possible, you must have a plan to pay it off within a short period of time.”
You can also try using your debit card or cash instead when making purchases, Verdyan suggests.
This way, you can track how much you’re spending and how much you can spend on other purchases down the road.
“When using a credit card, you may be trying to track how much you spent in your head, which often results in the bill being higher than you expected. This doesn’t happen when using cash or debit cards because you’re parting ways with your hard-earned dollars,” Verdyan said.
4. Ramp up your emergency savings
Unexpected life events can happen at any moment, and when they do, you want to be financially prepared.
That’s why having an emergency fund is essential. It can help you cover expenses you didn’t account for in your budget, like medical expenses, job loss or car repairs.
Most financial experts typically recommend having at least three to six months’ worth of living expenses saved up. If you don’t already have an emergency fund, building up your savings should take priority over anything fun you may have planned for yourself, Deady said.
“A fully-funded emergency fund is the safety net everyone needs to protect themselves from financial disaster,” said Deady. “It should be the top priority in terms of your allocation of cash.”
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