If you’re one of the many millions staying at home because of the COVID-19 lockdown, this is the perfect time to tidy up your finances and ensure you’re living within your means, investing wisely and saving for emergencies.
Here are tips from money experts to help you out during these uncertain times.
Create a simple budget
Tiffany Aliche, founder of financial education company The Budgetnista, recommends jotting down financial goals and budgets or using a spreadsheet.
“I don’t use any fancy apps. I just … list (my expenses) … and I let Excel add it up for me and I subtract it from my take-home pay. That is a budget,” Aliche says.
Organize your files
If you plan to tackle your mounting stack of financial documents, be aware of what to keep and what to toss.
“The things that you can ditch after a year are ATM bank deposits and credit card receipts. … (You can keep) vehicle titles until you sell them,” Frugal Feminista blog founder Kara Stevens says.
When it comes to indefinite purchases, stocks or bonds, “hold onto them until after they’re sold.”
Stevens advises keeping tax documents for about seven years.
“The government has six years to collect the tax or start legal proceedings if you fail to report more than 25% of your gross income.”
Your birth and death certificates, divorce decrees, wills and estate planning documents as well as any legal documents related to your business should be kept forever.
Stevens also recommends having a few copies of these documents, both paper and digital, and making sure you update and keep track of all of your passwords.
“I’m always vigilant about keeping … a safe at home or … a locked box at a bank or a post office. … The more places you have and you remember where they are, it’s better for you,” Stevens says.
Shave expenses where you can
According to Amy Colton, wealth CFO at Forefront Wealth Partners, “Everybody’s spending too much money somewhere; they just don’t know it.”
One area you may be overspending? Insurance. When helping clients pare down expenses, Colton says, “I will take their declaration page from their auto insurance or home insurance, and shop it around to different carriers and see what their different quotes are.”
You can also reduce your life insurance policy premium by adjusting your lifestyle, Colton says. A client “had term insurance, but the guy was a smoker when he got the insurance and he’s a non-smoker now.”
Aliche, who usually starts her financial spruce-up in January, reassesses how much she is paying for essentials and discretionary purchases. For example, if you haven’t “been to Planet Fitness in a month of Sundays … cancel. Or, ‘Hey it seems like our taxes are high, are we being over-assessed?'”
Find your savings sweet spot
Saving for immediate and long-term goals is crucial.
“If you have a budget already, you just need to make sure that you’re saving appropriately for retirement,” Colton says.
Aliche says, set an attainable savings goal for emergencies, even if you can only save a little at a time.
“Ideally you should be stretching for six months’ worth of emergency savings or more. … You might be like ‘Oh my gosh, I’m never going to reach it,'” Aliche says.
Over time, however, “what you will find is there’s found money. You might get a raise, you might get a bonus, you might get your refund check.”
Stevens also advises using budgeting methods to divvy up saving, necessities and wants. For example, the 50-30-20 rule allots 50% of your income for necessities, 30% for wants and 20% for savings, while the 70-15-15 method designates 70% of your income for necessities, then divides the rest in half for wants and savings.
But, Stevens says, “you can flip it to reach your goals if you want to be more aggressive (in one area).”
Automate where you can
Aliche is a proponent of automating savings and bill payments.
Then, Aliche says, “Check on it at least once a month. … The automation is way more reliable than you.”
You likely won’t miss the money that is automatically set aside for savings each month.
Get your money mindset together
Re-evaluating your mentality and attitudes about money is just as important as taking tangible steps to fix your finances this spring.
According to Stevens, it’s important to heal your relationship with money and practice “financial self-care.”
“I do these financial self-care weekends … where I basically reflect on how I am feeling … and I try to check in with my goals,” Stevens said.
Now that the economy has taken a serious slide, Aliche suggests creating a “noodle budget” if you are vulnerable that goes down to bare essentials, paying only the minimum on credit cards and other debt, as well as getting rid of unnecessary expenses like cable, as good ways to ride out the recession.
Aliche also says, “Prepare to invest, because during the recession, things go on sale. … Maybe you need to take a stock market course. …. Do that now; take a class now to learn.”
It’s also a good idea to learn a new skill you can use to make money or begin a side hustle with existing skills you have.
Upgrading your finances can seem daunting, but even incremental steps that don’t seem to move the needle much can be beneficial at this frightening time.
