5 Building Blocks of Financial Resilience During Turbulent Times
Published September 21, 2020
Confidently weather life events that impact your financial stability: 5 practices to adopt today to safeguard your tomorrow.
With stock market volatility and worrying headlines about how long the pandemic will last, it’s hard not to feel uneasy and question what the future holds, especially for your financial stability. To help you stay financially resilient during this time, Newfront recently hosted a webinar sharing insights into the market and some easy practices you can adopt to prepare for life’s unexpected events. Following are five key takeaways that you can do right now to cultivate financial resilience in your life.
1. Maintain sufficient emergency reserves.
Cash is comfort, especially during a global pandemic. Aim for a cash cushion that can cover at least 3-6 months of mandatory expenses if you experience a loss of income or if a big expense comes up unexpectedly. Not only is this a smart financial decision, but it also gives you peace of mind so you can handle the emergency and get back on track without going into debt. Keep this cash tucked away in a safe account you can access in a pinch — usually your checking or savings account does the trick.
If you’re still building up your reserves, consider setting up automatic electronic transfers to avoid the hassle and psychological pain of parting with your money.
Want more bang for your buck? Consider storing this cash in a high-yield savings account that offers a more competitive APR on your cash savings without having to take on market risk.
2. Protect you and your loved ones with adequate insurance and estate planning documents.
When it comes to protecting you, your loved ones, and your assets, start by making sure you’re maximizing the life and disability coverage offered through your employer, and consider supplemental coverage based on your needs. You may want to secure an umbrella liability policy which can protect you against large liability claims (e.g. you damage someone’s property and get sued).
Estate planning can be hard to do because who really wants to confront their morbidity? Although it’s not the most fun aspect of your financial life planning, it will ensure your wishes are carried out and save your heirs a lot of time and headaches.
At a minimum, make sure you’ve listed beneficiaries for your retirement accounts like your 401(k) and IRAs. Next, you’ll want to explore additional estate planning documents like a will, advanced healthcare directive, durable power of attorney, and possibly a trust document, depending on the complexity of your situation and how specific your wishes are. Keep in mind that these are legal documents that are traditionally drafted by an estate planning attorney, but there are other cost-effective ways to secure these documents, like using an in-network attorney if your employer offers legal benefits or going the self-serve route through an online solution like LegalZoom. Not sure what you need? You can always seek out an estate planning attorney who offers a free consultation so you can get an expert opinion before committing to anything.
3. Boost your credit and tackle bad debt.
It’s never a bad time to enhance your credit score. The reality is that for the most part, it just takes time to build your credit history and allow for your good habits to reflect on your score. Be patient as you make on-time payments, keep your usage to roughly 30% of your available credit, and limit the number of hard inquiries on your credit history.
In the meantime, try to prioritize higher-interest debt, like credit cards and personal loans, while committing to a repayment strategy that works for you. Using the “avalanche method” would mean tackling the debt which carries the highest interest first so that you minimize the overall amount you owe. Alternatively, the “snowball method” means you’re going after the smallest balances first, which tends to provide a psychological boost of motivation as you cross these debts off your to-do list.
4. Maximize your retirement and investment accounts.
It’s important to save for retirement early and often, even though it can feel far away in the grand scheme of things. At a minimum, make sure you’re contributing enough to get your full 401(k) match – it’s free money! Plus, you’ll be taking advantage of the incredible tax benefits through pre-tax and/or Roth contributions. And tax advantages aren’t just limited to retirement! See if your employer offers a high-deductible health plan which would make you eligible for a Health Savings Account (HSA) that offers triple-tax benefits and the ability to invest your balance like you would with your 401(k) and IRA. Lastly, a 529 plan is the most popular way to save for education expenses while receiving tax benefits in return!
5. Invest in yourself!
Living in this “new normal” comes with its obvious challenges, but a silver lining for many is the extra free time and flexibility that the pandemic has presented. This means we have more time for the activities we love, we’re discovering new passions, and maybe committing to a side hustle – all of which can be considered an investment in ourselves. The other silver lining resulting from the pandemic is that the education space has transformed significantly, offering more flexible online courses, oftentimes at steep (and much needed) discounts.
Now is a great time to take a step back, get your financial ducks in a row, and give yourself the gift of intentional, big-picture life planning. You may discover there’s a skill you can learn that will increase your value and give you leverage in your career or it might be the perfect time to add some letters to your last name with that professional designation you’ve always wanted but didn’t have the time or resources for until now. No matter what that investment in yourself looks like, you’ll thank yourself in the long term for prioritizing and investing in you, while you continue to let your good financial habits pay off down the road.
Forward-looking companies are paying attention and investing in programs to enable employee financial success. If you are looking to enhance your benefits offering and employee education, contact Newfront today to learn how we implement programs to help you drive financial wellness for your team. And for employees, be sure to know what is offered, educate yourself on the opportunities, and spend the time to leverage resources to help you best prepare for your future.