No matter your financial situation right now, I think we can all agree that in some capacity we are more stressed than we have ever been. And, of course, we have lots of questions around our finances as a result of COVID-19.
Our Office of Financial Wellness and Education – formerly Financial Literacy – has certainly seen more people reaching out asking for some guidance over these past couple of months, and I want to take this time to provide some tips that could be beneficial for you:
Take stock of what’s necessary
If your household is one where you and/or your spouse has an uncertain outlook on the stability of your income, you need to assess areas where you can cut, at least temporarily.
In some cases, you may already be spending less because you’re not driving as much, you’re not making impromptu trips to stores, or you’re just being more mindful in general of how you spend. Even if that’s the case, you still need to find time with the members of your household to assess what is most important and focus only on those things for the foreseeable future.
That way, should your household income go down, you’re better prepared to absorb the shock. If you end up being wrong – and everyone in your household continues to work – then you’re going to feel like you have a huge windfall because you’ve prepared for the worst and will be far away from it.
Try not to sacrifice your financial future
When times are tough – financially – more people begin to wonder if it makes sense to take money out of their retirement account to help make ends meet. In general, taking money out of your retirement account for nonretirement reasons should be an absolute last resort. As much as possible, you want to avoid sacrificing your future financial life.
Using your long-term accounts to fund your short-term needs often leads to a more uncertain future. Do what you can to avoid dipping into your retirement.
Build (or replenish) your emergency fund
For years, financial professionals have said, “You should have an emergency fund,” only to have people stare at them and say, “Why?” Our current situation is why.
Emergency funds are supposed to prop you up in times of uncertainty and help you overcome barriers when you’re not making the income you’re used to. Right now, you should know exactly how much you have in your emergency fund and whether it’s enough. (Hint: If it’s not at least three months of fixed expenses, it’s not enough).
If your current situation is stable, then you need to be doing all you can to build up your emergency fund to that three-month threshold. If your situation is less stable and you can’t accumulate enough to get to three months, try getting to $1,000 as fast as you can. In some cases, this may mean you can’t get rid of some of your debts as fast as you’d like, but there has never been a situation that better proves the “why you need an emergency fund” more than this one right now.
Find room for the things that bring you happiness
It is OK to feel stressed about what’s going on and the uncertainty that comes with it. Most of our financial lives have never been this up in the air. Still, it’s important that you try to make sure that, even with everything going on right now, you’re taking time for yourself and even spending a few dollars on something that makes you happy. If we’re going to get past all of this, we need to make sure we’re taking care of ourselves first.
Prop up your community
This last tip is for those who consider themselves to be doing well, despite the current economic situation. If you are doing well, make sure to invest your money in your community. Make sure to order food from a local restaurant. Buy any home improvement materials at your local hardware store. Donate to the local organizations that are helping support those who have fallen on tough times.
In the financial wellness world, we often tell people to comparison shop and look for the best deal so they are spending less. If you are doing well right now, I would argue that it’s time to pay a little more by going to the local stores rather than the national chains. If you want to see a fast economic recovery, the best way to do it is to invest in the local companies that make your area what it is.
If you have any additional financial questions, feel free to reach out to the Office of Financial Wellness and Education. We provide one-on-one appointments and group presentations for any student, faculty or staff looking for guidance in their financial lives. You can find us at moneysmarts.iu.edu.
Phil Schuman is executive director of financial wellness and education for Indiana University.