Financial Watch | November 2020

6 Ways to Shore Up Your Financial Foundation During Times of Uncertainty

The COVID-19 pandemic has taken a toll on many U.S. households, exposing vulnerabilities in their financial foundations, from low savings rates, to rising debt. However, there are important steps you can take in any economic climate to repair the cracks, plug the gaps and take control of your financial future. Consider starting with the six steps below.

1. Reevaluate goals and priorities

There’s no question that the global pandemic and ensuing economic recession have driven many people to reassess their goals and priorities, from how much they set aside for unplanned expenses, to how they will define their legacies. Reviewing your goals on a regular basis helps to ensure that the financial decisions you make now continue to support the long-term objectives you have established for yourself and family members.

2. Get a handle on spending

Unchecked spending is one of the easiest ways to veer off course along the path to pursuing your financial goals. That’s where a budget can help. Regardless of your income level, a budget provides a clear and consistent picture of your cash flow—what’s coming in versus what’s going out. Without it, you can’t optimize savings and spending, pursue your personal and financial goals with confidence, or seize important opportunities to grow your wealth. Best of all, budgeting doesn’t have to be tedious or complicated thanks to dozens of free online and mobile apps that make it easy and accessible. Many even enable you to aggregate data from accounts at different financial institutions, providing real-time account values. To stay on track, review your budget at least once a month and keep an eye out for any trends in overspending that need to be addressed or reined in.

3. Strengthen emergency reserves

The pandemic has placed a spotlight on the importance of building and maintaining emergency savings. Yet, setting aside the recommended six months or more of emergency cash reserves can be hard to accomplish, especially during challenging economic times. If you’re looking to start or rebuild emergency savings, begin by making savings a prominent part of your budget. If you can only afford to save a small amount now, set incremental targets until you’re able to meet your overall objective. Be sure to sock emergency savings away in a separate account so you’re less likely to tap into it for other expenses.

4. Make retirement savings a priority

Another important way to save for your future is by contributing to your employer’s retirement plan. Qualified retirement plans, including 401(k) and 403(b) plans, provide an easy and highly tax-efficient way to save for retirement. If your plan offers employer matching contributions, be sure to contribute at least enough to benefit from the full match each year. Otherwise, you’re leaving free money on the table. If you don’t have access to an employer plan, consider contributing to a Roth IRA. If you’re self-employed, you have a number of options, including SEP IRAs, Simple IRAs and Individual 401(k) plans.

5. Take control of debt

Managing debt is critical for pursuing your long-term financial goals. When managed properly, you can increase your credit score, which can help you save more by qualifying for lower interest rates on home, auto, and personal loans. However, when debt is managed poorly, that damages your credit score, potentially costing thousands of dollars in higher interest rates over time. Whenever possible, pay off credit card and other revolving debt on time and in full each month. Refrain from opening too many lines of credit, since too much available credit can lower your credit score. Also, be sure to check your credit reports at least annually and correct any errors in a timely manner.

6. Maintain a long-term perspective

Always make investment decisions based on your long-term goals, not short-term market movements. Emotional decision-making is an investor’s greatest enemy, leading many to enter and exit the market at the worst possible time. That’s why understanding the relationship between risk and reward is critical to making confident investment decisions that are aligned with your goals. Start with ensuring your portfolio is well diversified across multiple asset classes and investment types to help manage risk. This increases the potential that when one investment or asset class is doing poorly, others may be doing well, helping to offset short-term losses in portfolio value.

Remember, if you are decades away from retirement, your investments have more time to recover from market fluctuations. No matter your age or life stage, following a disciplined strategy that’s aligned with your goals and risk tolerance can help you avoid emotional decision-making and remain on track toward your important financial goals.

If you have questions or want to discuss additional strategies for strengthening your financial foundation, please call the office for an appointment.