Over the course of the last few months, our generation has likely learned a lot about our lifestyle, finances, and health. Although things are starting to go back to what we once considered normal, there are still hundreds of thousands of people out of work. Even if you have kept your employment throughout the pandemic, it’s smart to know how to keep your finances in order to prepare for any future crises. Think about your grandparents or ancestors; living through the Great Depression changed their outlook on life and their personal wealth for the rest of their lives. It seems that this recession could do the same for us. That’s why we are sharing money tips to start practicing now and to get you in the habit of keeping your finances stable for the rest of your life!
Start a savings
It might seem like an obvious move to make, but starting a savings account is detrimental to keeping your finances in good order. Having an account dedicated to savings is smart because it does accrue a small amount of interest overtime, so it’s better to have the money in the bank than to stash cash around your house.
While you’re assessing your finances and looking into your bank accounts more critically, identify where you can cut back on expenses. Surely, you’ve heard this before – stop buying that daily coffee, getting your nails done, or going on regular shopping sprees. This may have even gotten a bit easier to do over the last few months by staying home more often. Maybe cutting back on this frivolous spending has become your new normal! You can now dedicate this extra money towards your savings.
There’s another approach when it comes to deciding where you want to put this extra money you’ve stopped spending. If you have a lot of debt, from credit cards or student loans for example, you can work on paying them off. There are tons of ways to pay off debt quickly and you ultimately have to decide which way is best for you. However, it might be best to work on paying down debts before you start focusing too much energy on saving.
Free up cash you already have
When you need to free up cash now, there are ways to go about it if you have existing equity in your home. For example, if you’ve owned your home for at least 5 years, you likely have a lot of equity in it now by paying your mortgage monthly. You may also have gained equity from upgrading your home so it’s now worth more than when you bought it. You can make use of this equity by taking out a home equity loan. Before you do so, it’s vital to learn about home equity loans and exactly how they work so you’re confident that taking out this loan is the best option for you.
Another way to take advantage of the equity you have in your house to free up cash or even get money to make further investments to your home is with a cash-out refinance. A cash-out refinance may be better for you if you want to reduce the interest rate on your home loan. Right now, interest rates for mortgages are at record-lows so this might be a great opportunity for you. It’s important to do research on all options available for you to take advantage of the equity you own, because these are still loans and will need to be repaid.
Have a retirement plan
The biggest part about planning financially for the future is to be prepared for your retirement. It’s never too early to begin planning for that stage in your life. The sooner you can put away money for retirement, the better.
The easiest way to save for your retirement is to set up a 401K plan through your employer if they offer it as a benefit. Most employers will even match up to a certain percentage to contribute to your retirement as well. Plus, this 401K account will accrue and follow you from your current employer to your next so the money is always yours once it’s in the account. Again, you’re never too young to start this, so as soon as you’re eligible to contribute to a 401K through your employer, you should do it as soon as possible.
If your job doesn’t offer a 401K, you can still plan for retirement on your own. The best way to do this could be through a Roth IRA because it is tax-free. Unlike a traditional IRA, you deposit money to this retirement account after taxes, so when you want to withdraw the money to use later in life, it’s tax exempt. This is especially great for young people because your taxes will likely go up as you get older, so it will be nice to have this money available to you tax-free.
No matter what way the current economic downfall has affected you, it’s important to view this time in our lives as a learning experience. Reflecting on this experience can help you be smarter with your finances, be better prepared for future uncertainties, and ultimately be more financially stable.