Although government stimulus money and added unemployment benefits provided relief to many during the pandemic, financial insecurity remains high. The pandemic’s impact on personal finances has varied widely depending on demographics. If you or a family member caught the virus, your financial situation may be even worse.
Crafting a financial recovery plan as the pandemic wanes requires accounting for a slow return to normalcy. You’ll need to determine how the pandemic affected your personal situation, including your spending and ability to save. Think about your goals for the future and prioritize accordingly.
Financial improvement plans in these tumultuous times will look different for everyone. However, there are some universal tips that can help.
Find Small Ways to Save
Saving can be a challenge when you’re paying down past-due bills, but it’s an important aspect of financial recovery. Automating small deposits from your paycheck into a 401(k) or savings account is a great start. There are also debit cards that get even more creative to help with saving.
For example, some cards offer a round-up feature on your purchases. The card’s issuer will round up your total to the nearest dollar and transfer the change into a savings account. So if you spend $104.55, the card takes 45 cents from your checking and adds it to your savings. Those tiny amounts may not seem like much, but they add up.
If you start making more money, or receive unexpected income, pay off bills and put the rest directly into savings. The past year and a half demonstrated the importance of emergency funds.
Start by building one that can cover three to six months of expenses. If you meet that goal, raise the bar. Some people even aim to save a year’s worth of expenses because it provides more of a safety cushion.
Either way, an emergency fund can help secure your future. If you lose your job or need to take time off to care for your family, you’ll be ready.
As you build up this nest egg, shop around for the right bank or card. Check for high interest rates that will give you the best return on your savings. Sometimes credit unions and online FDIC-insured institutions are the best options.
Tweak Your Budget
Economic data throughout the pandemic has revealed disproportionate impacts among groups with varying socioeconomic statuses. Income inequality became more apparent as low-income households suffered more job loss and worse financial consequences. The economic recovery from Covid-19 is showing signs of being K-shaped.
This means that those in affluent households are having an easier recovery. Households in marginalized communities with fewer or limited income sources are experiencing more financial problems.
While this problem may seem insurmountable, planning a budget can help. Look at what you’re spending and categorize those expenses. If you’re good with numbers, you can track those expenses manually with spreadsheets. If not, use budgeting software that will do the work for you.
Some banks even offer built-in tracking and categorization features for checking accounts and credit cards. The bank will automatically categorize online payments and activities according to algorithms. You can also designate payees or transactions as belonging to specific categories like housing or food.
Organize your categories into “essential” and “non-essential” or “discretionary” items. Housing payments and utilities are essential expenses. On the other hand, you can cut down on eating out and entertainment expenses.
Depending on your situation and financial goals, you may need to focus on just covering your necessities. That in itself is important. However, don’t let the term “essential” fool you. There are ways you can save even on those items.
For example, refinancing your mortgage can lower your monthly payment. Taking advantage of sales and buying seasonal produce can reduce your grocery bill. In tough times like these, local nonprofits and assistance programs may even be able to help pay your utilities.
Address Your Debt
A Pew survey found that 48% of lower-income households have taken on debt to pay for expenses during the pandemic. These families borrowed money to cover wage losses. If you’re in one of these households, there are things you can do to speed up your financial recovery.
One option is to focus on paying off short-term debt. Find out what all of your balances are. Then pay them down in ascending order — start with the smallest balance and make the biggest payments you can each month. Then move on to the next smallest balance and the next until you’ve paid each debt.
This can be a great method to stay motivated. You’ll be able to watch each debt zero out.
A second way to tackle multiple debt balances is to start with the one that has the highest interest rate. In this case, you should start by negotiating lower interest rates.
Some financial counseling firms will negotiate on your behalf. For example, they may be able to get lower interest rates for your credit card debt. Or they may be able to get you lower minimum monthly payments. The catch is that you’ll have to stop using those cards.
Federal student loans may be another area where you can cut costs. Currently, the Department of Education has an emergency relief program in place through Sept. 30, 2021. This includes 0% interest, a halt on payments, and no collection activities on loans in default.
The Department of Education may extend these benefits. If it doesn’t but you’re still suffering from financial hardship, you can ask for forbearance. If your wages are reduced, there are also income-based repayment plans you can apply for.
Recovering from an unexpected emergency or job loss takes time and effort. Catching up on past due bills and debt balances can seem impossible, but taking small steps can help.
Look for cards that turn your everyday transactions into ways to save. Remember that every extra nickel you come across can help you build an emergency fund. Examine your budget and cut out what you don’t need. Look for ways to reduce the cost of your essentials, and make a plan for paying back debt.
Most importantly, don’t give up — and ask for help when you need it. Financial recovery is closer than you think.