As more people get Covid-19 vaccinations and the US reopens, people may be wondering what they should do to be on the right track with their money during an economic recovery.
There are signs that the economy is recovering. US companies reopen as states relax virus-related restrictions and employers hired again.
Not agricultural in March Payrolls increased by 916.00 and retail sales increased by almost 10% after the third round of stimulus payments. At the same time, unemployment claims fell to 576,000 last week – still an astonishing number but the lowest since the layoff pandemic began.
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“I think the economy is ready to tear apart,” Federal Reserve Governor Christopher Waller told CNBC Steve Liesman during a Friday “Squawk on the street“Interview.” There is more to be done, but I think everyone is much more comfortable with having the virus under control and we are starting to see it in the form of economic activity. “
Yet many households are still facing the effects of the pandemic, and will be for many years, even if the economy recovers. And even those who haven’t been hit as badly by Covid may need to reassess their finances as lockdowns have shifted priorities and spending habits.
In addition, money experts say that after being surprised by the coronavirus pandemic, many Americans are now more anxious to be prepared for the next possible economic downturn.
Experts advise people to focus on this when the economy opens and recovers.
1. Rebuild the emergency savings
The pandemic came as a complete surprise and showed many Americans how unprepared they were to face an emergency. Now that the US is rebuilding the economy and more people are back to work, strengthening emergency savings should be a priority.
“Financial best practice relates to bad and good times,” said Mark Hamrick, senior economic analyst at Bankrate. “We urgently advise you to give priority to emergency savings.”
A rule of thumb followed by many financial professionals is that people should have three to six months of living expenses in an emergency savings fund. But 13 months after a pandemic that leaves millions of people unemployed, people may be rethinking their savings goals.
If you have $ 25,000 in debt, you cannot manage your finances as if you didn’t have $ 25,000 in debt to pay off.
CFP and Coach at SaverLife
“This should get people thinking a second time about applying the rule of thumb and actually thinking about their own specific situation,” said Dana Menard, certified financial planner and founder and CEO of Twin Cities Wealth Strategies in Maple Grove, Minnesota.
Depending on their career, industry, family, and specific needs, some people may want to save more or even less in an emergency savings fund to prepare for the next event.
“Three months is just the starting point,” said Tania Brown, CFP and coach at SaverLife, a nonprofit focused on saving.
2. Pay off debts
Another high priority financial goal recommended by experts is to pay off debt, especially for those who may have taken on more to keep their afloat during the pandemic.
“If you have $ 25,000 in debt, you can’t manage your finances as if you didn’t have $ 25,000 in debt to pay off,” Brown said. This means that people should develop a game plan for paying off debt using one of many strategies, such as: For example, pay off high-yield debts first, or focus on the debts that are easiest and fastest to get rid of.
Brown says now is a good time to start planning your debt management. In the past few months, as a third round of business reviews and tax refunds expire, families in particular could have thousands of extra dollars to spend.
Of course, some people want to pay off their debts before building emergency savings or working towards both goals at the same time.
If people can afford to work towards multiple financial goals at once, they should, Menard said, adding that not everyone has this ability.
3. Revise your budget for the new normal
The past year has been unusual and has resulted in drastic changes in the budget for many. Whether people lost their jobs and had to find other sources of income, or whether they had extra money on canceled trips, budgets may need to be updated.
This is also important as people start to re-enter the world when it opens up after the pandemic. They should be extra careful so their excitement doesn’t result in high spending, Brown said.
Really take into account what that inflation is going to be – what you think you budgeted earlier may not be enough
Investment advisor at Sigma Investment Counselors
It’s also a good idea to check if the cost of certain goods and services is the same or has changed due to the pandemic.
“Remember, inflation is creeping in – things could cost more,” said Marisa Bradbury, CFP, CPA and investment advisor at Sigma Investment Counselors in Lake Mary, Florida. “Really take into account how high this inflation is going to be – what you think you budgeted earlier may not be enough.”
If you have money to spend on fun things like entertainment, shopping, or traveling, Bradbury recommends going back to budget and earmarking a certain amount to protect yourself from over-spending. This is especially important for retired people living on a steady income, Bradley said.
4. Calibrate and revise your financial goals
As the US pulls away from the pandemic, people should also rethink their long-term financial goals. The past year has set millions of Americans back in many ways, and for some it has meant pushing away milestones like buying a home or car.
“If they’re hammered by 2020, they may have to retire for a couple of years. That’s fine,” Brown said. “You may have to deal with some of these financial fundamentals first.”
Even if the economy recovers, there won’t be an overnight return to pre-pandemic finances, according to Brown. And people should be aware of this and adjust their expectations accordingly.
“What worked in 2019 or even 2020 may not work now,” she said.
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