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9 tips to help you prepare for financial uncertainty
Key takeaways:
The last year has shown the whole world just how uncertain things can be. Many people lost their jobs, started working from home, had to educate their children online, or made other drastic changes to their lives. The uncertainties brought financial trouble for many and as the world slowly returns to normal, people have taken a lesson from the pandemic – they need to be prepared for uncertainties.
How can you prepare? Establishing a nest egg is critical to have a cushion against economic emergencies. There are several strategies you can use to prepare yourself for the unknown. This brief guide to preparing for financial uncertainties is designed to point you in the right direction – check out these tips.
1. Create a financial plan
Sit down and take some time to create a financial plan – people with financial plans are 78% more likely to pay their bills every month and are better poised to deal with economic uncertainties. A financial plan should consist of short and long-term financial goals and it should outline how you're going to meet your goals. A lot of Americans don’t have a financial plan so if you don’t have one, you’re not alone.
Start by creating a budget for your current situation. Figure out where your paycheck goes and identify ways to improve your finances. As you get your short-term finances under control, begin thinking about long term goals like buying a home, sending your kids to college, and retiring.
2. How many months of income have you saved?
No one wants to think about losing their job but investing some time into considering this uncertainty will help to prepare you for the worst. Look at how much you spend every month and see how long your savings can keep you afloat if you lose your job.
Experts say that you should have at least six months to a year of living expenses on hand but at a time when nearly half of Americans don't even have $400 in emergency savings, that is not always a reasonable goal. Work your way up slowly. Determine how much money you need to survive for two weeks and start saving. Bump up the time frame when you reach your goal and continue the process until you have eight months of living expenses.
3. Identify credit sources for emergencies
You don't have to use savings when an emergency strikes. You may be able to lean on credit in dire situations. This option is not ideal because it will cost you more in the long run, but if you don't currently have much in savings, you may want to look at your credit options.
Keep in mind with credit cards and emergency loans, you pay a lot in interest. For example, using a credit card to cover a $400 emergency can end up costing you around $500 if you take a year to pay off the bill and the longer you take to pay, the more you will end up paying. In contrast, if you have savings to cover emergencies, you don't have to worry about owing interest or fees on the money you spend.
Have at least one card open and don't touch it unless you really need to get through an uncertain time.
4. Reduce unnecessary expenses
Reduce the amount that you spend so that you can save more every month. You don't necessarily have to forgo your favorite creature comforts – you just need to be a little more financially savvy about how you indulge.
Love grabbing a fancy coffee on the way to work? Make your own at home. Always running to the gas station to grab drinks and snacks? Buy them in bulk at the grocery store where they are less expensive. Enjoy vacations? Try taking them closer to home or trade in hotel rooms for campsites.
5. Bolster your budget with extra cash
Saving money requires you to earn more or spend less and you may want to work on both sides of this goal. Consider finding a small side job and putting all the extra money into savings. The service sector is returning as people start traveling and eating out again and you may want to look for a part-time job in retail, restaurants, or coffee shops.
There are all kinds of gig economy jobs that also allow you to work for a couple of hours on your own schedule. Some people, for example, sign up as Uber or Lyft drivers and they pick up fares during their commute home. Walking the neighbors’ dog once a week can even help you put $20 or so into your savings account. It all adds up.
6. Make short and long-term plans
Most of the above tips are related to meeting short-term savings goals but you also need to think about the uncertainties that you may face in the future. Think about your retirement and try to find ways to put money aside.
The bonus about saving for retirement is that the most common retirement plans – Traditional IRAs and 401(k)s – let you contribute pre-tax dollars. This means that you don't face any income tax on the funds you put into these savings vehicles.
7. Look over your insurance policies
Car accidents, injuries, or damage to your home can all create debilitating financial emergencies but the right insurance policy can help you prepare for these financial uncertainties. Look over your plans and make sure that they are set up to protect you.
Make sure that your car insurance, for example, has rental coverage so that if an accident renders your vehicle undriveable, you don't have to pay to rent one. Keep in mind, however, that this coverage is really only necessary if you only have one vehicle. You may want to cancel it if you have a second car or know that a friend will lend you one.
Go over all your policies to ensure that you are balancing potential needs and low premiums. Also, consider getting quotes from multiple companies once a year to ensure you're paying optimal rates.
8. Put your oxygen mask on first
You can't take care of others if you don't take care of yourself first. Put your financial needs first. Tell family and friends that you will help them after you get your own financial house in order and consider putting charitable contributions on hold.
9. Ask your employer for help
Your employer may also be able to help you. Ask them to set up a plan to help you save for financial uncertainties. There are employee-benefit plans that exist separately from retirement plans, and they allow employers to help their employees save money.
SecureSave helps employees save money. Our emergency savings program allows you to save automatically from your paycheck, get matching contributions from your employer, and access your money whenever you need it.
Sign up on our waitlist today, so we can help encourage your employer to add SecureSave to their list of benefits. Contact us at 425-216-1150 to learn more.