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Easy tips to plan your personal finances during times of uncertainty
No matter what caused your financial hardship, we often say to take a breath and take a step. Each step you take toward financial wellness will pay for itself.
Ease Your Way into It
Once you take a deep breath (maybe two or three), follow these quick steps to ease your way into creating a new financial plan:
Understand how much cash you have, and how much you'll need. (See: Create a Net Worth Snapshot)
Don't be too reactionary.
Sometimes your financial institution might waive your fee
It's not too late to start planning your finances
Carve out some time to hunker down and go through your personal finances (See: GUIDE: Financial Wellness Check-Up) It's not too late! But, it shouldn't wait much longer. Regardless of your personal or financial situation, everyone should evaluate their personal finances right now.
Have a partner? Talk to your partner.
(See: Talk Finances with Your Partner. Oftentimes, financial hardships count as a "life-changing event." While we're used to referencing a new job, house, or baby as a "life-changing event," some come as surprises. And, any time a big life change pops up, it's time to revisit personal finances. Especially if you manage your finances with a spouse or partner, it's important to review your decisions and their implications as a team.
Evaluate your emergency cash reserve.
A "cash reserve" is just a fancy term for having some money in the mattress. It's liquid cash you have on hand for an emergency. Take a moment to determine how much cash you have right now compared to what you spend each month. (See: How to Create a Budget.) Be sure to include upcoming big expenses, outstanding bills or those due in the next few weeks. This will help you understand how long the cash you have will last.
Yes grasshopper, it's time to create a budget.
(See: How to Create a Budget.)
Take a peek at your monthly cash flow—how much goes out and how much comes in. Of the inflows, how certain are those? Is a majority of your income coming from inconsistent gig projects or from a super stable W2 employer? As scary as it may seem, consider how stable your income is, then plan accordingly.
Segment your budget into your needs, wants and savings.
You can't really adjust your needs too easily. (Think: mortgage, rent, basic food, health insurance, a car payment, err, Netflix.) Your wants, however, are fair game. (Think: something you can go without, like what you spend on carryout, excessive groceries, clothes, online shopping, subscriptions, etc.)
Savings are things like a 401k contribution, contributing to an emergency cash reserve, a child's 529 college savings plan, and aggressively paying down mortgage principal.
We don't recommend you rush to decrease your savings bucket. But if you've trimmed all the wants you can and can't decrease the needs much more, you may be forced to temporarily decrease some savings.
Just remember to turn your automatic savings contributions back on as soon as possible and, if possible, make up for missed contributions. (#IdealWorld, we know.)
Revisit your financial plan to pay off debt—including student loans.
It's important to get a handle on paying off debt. Focus on the debt with the highest interest rate first, especially credit card debt. Then, start tackling other debt. Create a Debt Elimination Plan with Pocketnest to learn how to pay off debt when cash is tight.
Don't hack your investments!
Now is NOT the time to make emotional decisions! It's not the time to sell your investment holdings, even if they're in decline. Instead, notice how you feel during this heightened economy. If checking the markets daily keeps you up at night, consider not doing that. Selling low is not the right decision.
Stay calm and know that knowledge is power.
Reviewing your cash reserve and budget is not super fun to everyone. The more you can understand your monthly cash flow and plan for various scenarios (good, bad, and worse), the better off you will be to handle uncertainty—not to mention the better off you will be to sleep at night.