Right now, our world is consumed with the impacts that COVID-19 is having on our health and our economy. So many have lost their jobs and are struggling to make ends meet. You may have experienced a financial hit in recent weeks, and it could mean that you need to reevaluate your own budget. In this time of financial uncertainty, it can be empowering to take control over your finances. Taking action now will relieve stress levels and will set you up for success in the future.
- Building Your Emergency Savings Fund
This season of uncertainty is why an emergency fund is critical. Having three to six months of living expenses is recommended, but if you aren’t there yet, now is the time to make a plan.
You may need to scale back on the non-critical spending, especially if you are currently out of work. You may find that continuing to cut this type of spending out of your budget, even after you are back to work, will help you reach your emergency savings goals quickly and efficiently.
Call your mortgage institution, student loan provider, credit card companies or even your utility services to ask if they can extend your payments. This can prove to be a powerful option. Pushing the pause button will allow you to build up your emergency savings.
- Consider Refinancing Your Loans.
Now, more than ever, may be a good time to look at refinancing your loans. The Federal Reserve lowered interest rates to 0%. When this happens, you may be able to lock in lower payments over 10, 15, or even 30 years due to lower interest rates. If you can find a lender that has low closing costs, the option of refinancing may benefit you. If you need help finding a lender, contact your advisor.
If you have credit card debt, now might be the time to look into consolidating them, if the interest rate is lower than what you are currently paying. Another option is to look for credit cards offering a 0% interest rate to roll over the balance and pay it down more aggressively. You would want to make sure that the rate is set for its entirety and not just a few months. After paying off the card, make it a point to avoid using it. The spending habits are what you want to get control over, so that you don’t find yourself in the same boat again.
- Look for Other Sources of Income
While there are companies that cannot keep their doors open due to the virus, there are many well known organizations that are ramping up hiring. Here is a list of 30 major US Companies currently hiring. If you can pick up some extra work on the side, it can help boost your savings even faster.
- Stay Connected
Actively connecting with people is a great way to collaborate and build relationships. It’s also good for your mental health to stay connected whether that be phone calls or virtual meetings. Look for groups on social media that share in the same interests as you. Follow and comment on posts and like photos that you find interesting. Call or video chat your friends or family. Share your own story and start conversations to get people to share their ideas. Create a space where you can share your skills, values or experiences.
- Do Not Touch Your Investment Balances
It is always recommended to invest consistently, and many people are doing this by contributing to their retirement plans at work. Right now, checking your investment balances daily will send your emotions on a roller coaster ride. There is no successful science to “timing” the market. Instead think of “time in” the market as your strategy. With the markets fluctuating the way that they have the last few weeks, you’re taking advantage of the opportunities to buy more. Think of it this way, when are you more likely to spend money at a department store? When there is a sale or when everything you want is full price? Right now, you are getting the sale price!
The impact of this virus is different for all of us; it looks different and it feels different. Taking control of your finances can be an emotional lifesaver, and we hope that these tips can help to alleviate any stress you are feeling. Most importantly, here at CPS, we hope that you and your family are staying safe and healthy. We’re in this together.
Tamara L Fales
Retirement Plan Advisor
Retirement planning can seem complicated. Everyone has the ability to save money in some sort of a retirement plan, either at work or as an individual. About half of Americans have access to some type of retirement plan through work. There are many different kinds of plans that employers can offer. The most common plans are the 401(k), 403(b), SEP IRA, and SIMPLE IRA. The most popular place to save for retirement is through an employer-sponsored plan. The most common retirement plan offered by businesses is the 401(k) plan.
Employer-sponsored plans are popular because retirement savings can be deducted from your paycheck. Many employers offer perks like matching contributions and profit-sharing that make saving in a 401(k) plan an even better deal. At a minimum, you should save enough to get the full match offered by your employer. For example, if your employer has a “3% match”, you should contribute at least 3% of your gross pay. Some employers have more generous matching. Employer matching is basically “free money” – don’t leave it on the table! Contribute at least enough of your pay to get the match, and if you can, you should save more in the plan.
The most you can contribute in 2020 is $19,500 if you are under age 50, or $26,000 if you are 50 or older. Saving part of your paycheck in an employer-sponsored retirement plan will also save you on taxes. Your savings in the plan are excluded from your income for tax purposes. Money your employer contributes, and earnings on your investments in the plan, are not taxed until you withdraw the money. All of these add up to big benefits for participants who save as much as possible in the plan.
Investing Your Savings
Most 401(k) plans offer a range of investment choices, and it is up to the participants to decide how their savings will be invested. This is good for experienced investors, but many of us will need more help deciding how to invest our savings. The best 401(k) plans offer a variety of low-cost investment options, investment advice from a true fiduciary, and individual financial planning for every participant. A fiduciary is someone who is legally obligated to act in your best interest. If your 401(k) plan doesn’t include personal advice and planning provided by a fiduciary, you should seek the advice of your own advisor.
Watch Out for Fees and Expenses
The investment options in all plans are not equal! Some plans have much higher expenses than other plans. Even within a plan, different investment options can have varying expenses. Every dollar you pay in unnecessary fees and expenses reduces your long-term wealth. As with any investment, you should understand what you own, why you own it, and the fees you’re paying for that investment. The default investment options in many plans are expensive mutual funds. If you don’t select your own investment choices, you may be unpleasantly surprised.
Your employer’s 401(k) plan is often the best place to start saving for retirement. The tax benefits of contributing to a plan, tax-deferred growth on plan investments make 401(k) a great idea for savers. If they are available, employer matching contributions can make 401(k) savings even better. Save early, save often, and save as much as you can. When the time comes to live on your retirement savings, you’ll be glad you did!
Nolen B Bailey | CFP®, CRPS®, ARPC
Director | Retirement Plan Services
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