I hope everyone is staying healthy and strong throughout these challenging times. We still aren’t clear on all the impacts both economically and socially that this virus will bring our country and that uncertainty can be really stressful. I’m feeling it personally and I’m sure many of you are too. We all handle and process our stress and anxiety in different ways. For me, I like to take stock and make a plan because it gives me a sense of control back, even if it is just a little piece of it. What I did was make an inventory of things that I needed to review to make sure our financial situation was in a good place. Call it an annual financial wellness check-up. Just like we get a physical for our health, this is a version of it for our money. If you have some time (and I'm pretty sure you do...ha!), sit down and review the following areas of your financial life:
Spending Plan
I don’t like the word budget. I’ve said that before and I continue to stand by that feeling. "Budget" is obviously a widely adopted term but it is restrictive and limiting when I picture it. So I call it something different. The term I prefer is a spending plan. This is exactly what it sounds like. A written or digital plan of the money that comes in each month and where you are going to spend it. The goal is to have money left over for emergency savings and investments, like putting money in your 401k or IRA.
Spending plans change as our personal situations change and events like this pandemic are clearly factors that can cause us to rethink our spending plan. The places my wife and I spend money have greatly changed over the last month because of social distancing and staying home. In some areas we are spending less (like on restaurants and paying daycare) but in other places the spending has significantly increased (groceries and Amazon orders). The short term effect is we have more money than usual left over. That is pretty cool so we are directing those dollars to savings given the uncertain future in front of us. For Sarah and I, it is a time to be a little more conservative.
If you don’t have a spending plan or haven’t looked at yours in a while, I encourage you to spend some time reviewing. Has your income been disrupted? Could it potentially be with all this chaos? Have you increased your spending on subscriptions and other entertainment during quarantine? These are good things to understand and make sure that you are spending your money in the way that makes sense for today but also for the future.
There are tons of good apps to help with budgeting but I especially like the Trim app to see your recurring payments and get help negotiating certain bills on your behalf like your cable payment or interest rate on your credit card.
Your spending plan is really the beginning point that sets up these areas so it is the logical place to start.
Emergency Savings / Rainy Day Fund
I’m sure you are tired of hearing me talk about emergency savings and rainy day funds. Well COVID 19 is definitionally why emergency savings funds are important. Life happens and can throw us curveballs that impact our employment, income and ability to spend and save. This is especially true if we get sick and incur medical expenses that were unexpected. This is happening to thousands of people right now who are coming down with Coronavirus and are spending time in the hospital. They require medical care beyond the tests which are being covered for free which can put pressure on their financial situations. It is scary for their physical health AND their financial health.
The majority of Americans don’t have sufficient emergency savings and it makes situations like these extremely challenging. The goal is to have 3 to 6 months of savings for basic necessities like paying for a place to live, food and paying our debts (at least the minimum payments). What we are finding as people get reduced hours, incomes or, worse, lose their jobs, is they don’t have money stashed away for THIS rainy day.
Now is a great time to review your emergency savings account and start to fund it more than you have in the past. Because the future is uncertain, having cash on hand is a great idea.
Debt Review
The debt we carry, whether that is in the form of credit cards, student loans or things like mortgages are imperative to have captured in your financial picture. These are our obligations and have to be prioritized to prevent a compounding negative effect like late payments and hits to our credit score if we fail to make payments. For many Americans my fear is that they will get impacted by the negative economic outcomes of this pandemic (like losing their jobs or having to take pay cuts) and start to fall behind on paying back their debts. That cycle is destructive and has long term impacts.
To prevent that outcome, you have to know not only how much debt you have across all your accounts but also the interest rates, payoff dates and monthly minimum payments. It is so important that you keep making at least the minimum payments but preferably paying more each month even if income starts to get tight. But to do that, you have to know where things stand so now is a great time to take stock.
Credit Score
Speaking of credit, knowing your credit score is always a great idea and a key number in your financial picture. Looking forward, I think we are going to be in a situation where getting loans could be really tough. That could be for buying a house or even a car as the economy evolves to respond to the pandemic. That means that the people who are going to get access to those loans are the applicants with the highest credit scores and most stable income.
The average credit score in the US is 682 out of 850. It is always good to know how you stack up compared to both the national and state average where you live. If you need access to a loan of any type, the lender is going to compare you against your neighbors in your city and state to assess who is the least risky borrower.
There are a number of ways to find out your score and I would start by checking with your credit card provider. Many now will show you your scores for free, how you stack up to the US averages and also give you suggestions for how to boost your credit score it you need to get that number up. If your credit card doesn’t provide your score, check out the FTC.gov site to know your rights. Under the Fair Credit Reporting Act, the 3 national credit reporting companies (Equifax, Experian and Transunion) are required by law to give you your credit report for free once every 12 months. The FTC website tells you how to get your report from each company.
Shop Your Insurance
We get insurance on lots of things when you stop and think about it. You may have it on yourself in the form of Life Insurance, you are required to have it on your car, your house if you have one and even some apartment complexes require you to have renter’s insurance. It is probably pretty low on your to-do list to “shop your insurances” but you can actually save some decent money to taking these coverages out to bid every so often.
This is an area where technology has really helped the consumer. It is easier than ever to find out if your current rates are competitive using sites like The Zebra and Gabi for car insurance to compare quotes from all the big insurance agencies. Policy Genius and The Zebra again let you shop and compare for home owners insurance. There are also disruptive companies like Lemonade that have an entirely new model for coverage that are worth checking out.
If you haven’t compared coverages in a while, I bet you may find several hundred dollars in savings by shopping around, especially if your credit scores and claims history are in good shape. Those dollars add up over time and can be used to put towards your other money goals.
Check Your Charity Donations
Times are really tough right now and it means we have to take care of one another. That can be with an act of kindness or with our money to causes that count. So if you can afford it, I hope that you will consider donating your money and eventually your time when we aren’t locked down to an organization that you believe in and have a passion for their mission.
My wife and I have been involved with the Boys & Girls Club of Greater Dallas for almost 5 years now. The work they do to develop kids and give them a safe space to learn and grow is amazing. It means a lot to us and we choose to put our time and donations to the cause.
There are more things that could be looked at but that is a pretty good list for now. We can always come back to these other areas in a later podcast. I know this stuff isn’t the most fun use of your time but I guarantee it will be worth it once you get through it. Maybe do it over a glass or bottle of wine! That is how I’ve been doing it. If you like Calm Cash, please tell a friend and encourage them to subscribe or follow it. Take care of yourself, stay safe and I’ll talk to you soon.ation to a great cause…even if it’s just $5.
There are more things that could be looked at but that is a pretty good list for now. We can always come back to these other areas in a later podcasts and blog posts. I know this stuff isn’t the most fun use of your time but I guarantee it will be worth it once you get through it. Maybe do it over a glass or bottle of wine! That is how I’ve been doing it. Take care of yourself, stay safe and check back soon.
- Ben