4 Financial Habits Worth Keeping as the Economic Recovery AcceleratesDespite the financial challenges and disruptions brought on by the COVID-19 pandemic, data shows that Americans across all income levels made smart choices with their money over the past year. Payment delinquencies fell as consumers paid down debt,1 and personal savings increased as incomes rose—thanks in large part to government stimulus measures.2 One recent survey reports that 78% of respondents developed a new personal finance habit during the pandemic that they plan to continue, such as monitoring their finances more closely or setting up a monthly budget.3 Keeping these habits intact even as the economic recovery accelerates is important. While you can’t predict the future, sticking with sound financial practices can put you in a better position to weather any future challenges that come your way. Below are four healthy financial habits worth keeping in 2021 and beyond. 1. Stick with a budgetMany people turned to budgeting to regain a sense of control during the pandemic.3 A budget is essential for monitoring what’s coming into and going out of your household each month, so you don’t overextend yourself. Maintaining a budget also makes it easier to generate long-term savings and avoid debt. As the world reopens, you’ll need to give some thought to how your budget may change in the months ahead. For example, will certain expenses go up if you return to your workplace or kids return to school? These may include commuting costs and expenses associated with lunches, clothing, activities or sports. What about travel and entertainment—will spending return to pre-pandemic levels or do you plan to spend less on certain discretionary expenses going forward? If you need help determining your future cash flow needs, there are dozens of online tools and mobile apps that can help. To find one that meets your needs, consider The 7 Best Budget Apps for 2021. Remember, budgeting isn’t simply about cutting expenses, it’s about making sure you’re spending your money on things you value. 2. Keep debt in checkOne of the things many people valued in 2020 was debt reduction. Americans paid down a record $82.9 billion in credit card debt last year.4 In the months ahead, the economy is expected to heat up as consumers release their pent-up demand for shopping, dining, travel, and entertainment. While it may be tempting to throw caution to the wind as life returns to something resembling normal, remind yourself how it feels to be debt-free or to have a better handle on your credit before using credit cards to pay for a vacation or shopping spree. Remember, the less money that goes toward servicing debt each month, the more that’s available for you to save and invest, which can help you pursue your long-term goals faster. To learn more about managing credit and debt and how maintaining a strong credit score can help you save money, visit myFICO. 3. Continue to boost savingsMaintaining adequate cash reserves has always been important for covering unplanned expenses, such as a car repair, new roof, or medical bills, without incurring debt. During the pandemic, emergency savings took on even greater importance as many Americans faced layoffs and furloughs. Having enough money set aside to cover three to six months of living expenses can provide the confidence that you’ll be able to pay for essential expenses when unexpected events occur. If you had to dip into savings during the pandemic, put a plan in place now to rebuild emergency reserves. Saving all or a portion of a recent economic impact payment, tax refund, or upcoming child tax credit payments that you may receive can be a great way to jumpstart savings. 4. Put investing on autopilotAs the stock market slumped last winter, investors who took the opportunity to buy while prices were low were in a better position to benefit as share prices began to rise in the spring. While this is a smart strategy, it’s seldom possible for investors to pick the best time to enter or exit the markets. However, a technique called dollar-cost averaging allows you to buy into the markets at regular intervals, which can help even out the price you pay for shares over time. You’ll purchase shares at higher prices when the market is rising and at lower prices when market values are down. If you participate in your employer’s retirement plan, you may already use this strategy to make plan contributions each pay period. Best of all, setting up regular automatic investments is one less thing you have to think about each month. Finally, if you’ve incorporated these or other positive financial habits over the past year, spend a few minutes reflecting on how this makes you feel emotionally. Do you feel more secure about meeting your current financial obligations? Are you more confident about the future? Revisit these feelings whenever your financial health begins to feel a little off-balance to help you get back to center and remain on track toward your goals. If you have questions or concerns about saving, budgeting, or managing family finances, call the office to schedule time to talk. Dollar cost averaging will not guarantee a profit or protect you from loss, but may reduce your average cost per share in a fluctuating market. 1https://www.consumerfinance.gov/about-us/blog/credit-card-debt-fell-even-consumers-having-financial-difficulties-before-pandemic/ This information was written by KRW Creative Concepts, a non-affiliate of the Broker/Dealer. |
Financial Watch | May 2021
|
May 18, 2021