- Data shows that people are more engaged with their money than before the pandemic.
- A crisis is as good a time as any to get your finances in order, and there are small ways you can get started today.
- Start by taking inventory of your current financial situation and clearly defining your goals.
- Next, make small monthly transfers to build up an emergency fund and review your insurance to make sure all your assets are protected.
- This article is a contributed piece as part of a series focused on millennial financial empowerment called Master your Money.
2020 has been an intense, emotional year, and with uncertainty running high, a lot of people are feeling particularly stressed about their finances;
The good, and perhaps surprising, news is that we’ve actually seen people engage more with their finances throughout the pandemic. According to recent Schwab data, 40% of Americans are saving more, 24% are more likely to have a financial plan, and 22% are more likely to be investing than during pre-pandemic times. Engagement is the key to decreasing anxiety and boosting confidence.
If you want to seize the moment and start 2021 with your financial house in order, get moving on this financial empowerment checklist:
1. Do something
Lying awake at night or burying your head in the sand altogether — those aren’t strategies. Instead, try the simple yet empowering first step of taking financial inventory. Assess your income, assets, investments, debts, credit score, and any other key finances to get a clear picture of where you stand. From there, develop a detailed budget to keep things on track.
2. Plan it out
Whether it’s for a big interview, a bucket-list trip, or a wedding, we all know that advanced planning increases confidence and typically leads to better outcomes. Building a plan from the ground up can seem daunting, but it is one of the best ways to alleviate the questions and anxiety keeping you up at night. Just make sure that you start by clearly articulating your goals. The next steps will flow from there.
In other good news, complementary and low-cost financial planning resources, tools, apps, and robo-advisors are readily available to help you through the process.
3. Cushion the blow
If 2020 has taught us anything, it’s that we can’t predict everything life will throw our way. That’s why having a solid emergency fund to help you manage through a potential setback is so critical. Emergency savings can help reduce the chances of going into debt or adding more debt during an already challenging time.
My colleague Amy Richardson, a Certified Financial Planner with Schwab Intelligent Portfolios Premium, typically advises her clients to set aside three to six months of expenses. However, don’t get overwhelmed if you don’t have the funds available right now. Saving up over time will be more manageable (and less stress-inducing) than you think if you are consistent. Consider automating your savings by setting up small, achievable monthly transfers and watch your emergency fund grow at a steady pace.
4. Cover your assets
Everyone knows how critical it is to have health insurance, but have you factored other types of personal insurance, like renter’s or long-term disability insurance, into your overall financial plan?
Insurance might feel like an unnecessary cost — especially if you are aiming to whittle down your monthly expenses — but having that extra cushion if you need it can be meaningful to your long-term financial success. During an already uncertain time, insurance can add a layer of security and soften the blow of a theft or accident, and it’s pretty affordable to boot.
Keep it up
When so much seems beyond your control, it’s crucial to focus on what you can do to get that much-needed peace of mind. Small wins add up to big results, and making a thoughtful financial plan goes a long way.
The end of the year is a good reminder that our situations change with time, so remember to come back to your fundamentals regularly — at least once a year — and adjust accordingly.
Cynthia Loh is vice president of Digital Advice and Innovation at Charles Schwab and a member of BI’s Money Council.
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