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3 Financial Takeaways from COVID-19: Important Family Planning

Jul 6, 2020

COVID-19: Important Family Planning
We’re all usually striving for financial stability, but these days, many of us are just looking for ways to stay afloat. The coronavirus pandemic has had significant financial and economic ramifications for individuals and for businesses, and it has exposed many vulnerabilities in the way we plan for the unexpected. This presents us with a unique opportunity to reevaluate how we manage our finances and how we prepare for unforeseen situations.

Below, we’ve listed three key financial takeaways from the current pandemic, as well as some helpful tips for you to consider when taking a closer look at your finances.

A financial plan should factor in a wide variety of scenarios.

It’s important to keep track of your finances and your spending habits using financial tools so that you have a clear snapshot of your financial standing. Financial planning is similar to budgeting, but budgets consider historical and projected spending patterns and habits, whereas financial plans look to variables to predict future cash flows, asset values, and withdrawal plans. Budgets are set by income and expenses, and aim to manage expenses in a way that does not exceed income earnings; they can even help create a surplus of money.

While it’s important to budget, a financial plan can allow you to create a visual road map of the goals and aspirations you wish to attain. Financial plans can also help ensure a smooth transition through life’s many financial phases, so it’s important to update yours frequently and be as flexible as you can when changes with finances do occur.

Revisit your plan every few months to make sure everything is up to date. You should factor in a wide variety of scenarios, because you never know how your financial situation will change. For example, your goals may change as a result of other life changes that are out of your control, such as job loss, birth of a child, moving to a new home, or other changes that have major financial implications. Consider speaking with a representative from your credit union, bank, or a professional financial planner to create a plan tailored to your personal financial situation so you can be prepared for the unexpected.

You should try to stretch every single dollar, every single day.

There are many ways you can stretch your dollar, but it’s important to do this all the time and not just during times of financial crisis. Getting in the habit of stretching every dollar every day can help prepare you long before any unforeseen financial crisis arises, since you’ll have more money on hand than you would had you splurged on everyday items.

To start stretching your money now, consider starting a “no-spend streak” and only purchase things that are absolutely necessary. Prioritize things like groceries, toiletries, and antibacterial cleaning products, and only prioritize clothing if you or your kid(s) have grown out of your current wardrobe. Consider turning the streak into a challenge by collectively deciding on a small prize that can be shared amongst the family—this way you have a common goal to work towards. Or, the prize might be something that can’t be shared, and the family member who spent the least amount of money by the end of the month gets to keep the prize. You can change up the rules of this challenge month-to-month in order to keep it fun, fresh, and effective long after the pandemic has ended.

You never know when you will need to dip into your “Rainy Day Fund.”

If you don’t already have a rainy day fund, there’s no better time to start building one than now! Rainy day funds are important to have because they can protect you against the many financial implications that can come with unforeseen challenges that may be out of your hands—like the current pandemic.

There are many times a rainy day fund can be helpful. Just a few examples are: if you or your partner loses the main source of income due to job loss or a layoff; if you experience a pay cut; if you or a family member experiences a sudden injury or illness that requires time away from work, or you have to cover the resulting medical bills; or if a sudden and costly car or home repair pops up.

Having your own emergency fund means that you don’t have to rely on others during times of financial crisis. A Bankrate survey showed that 36 percent of Americans would either borrow money from friends or family, take out a loan, or use credit cards to handle a $1,000 emergency, whereas 39 percent of Americans would pay the cost from their savings. It’s best to have a savings account that you can dip into during an emergency of any size to avoid racking up debt with friends, family members, or your credit card provider.

The most important reason you should begin building your emergency fund sooner rather than later is that unexpected challenges are just that—unexpected. We cannot predict when they will arise, what their nature will be, how long they will last, or what their financial impact will be, so it’s best to approach your savings with the mindset that at any given moment, you might need to dip into your funds, and you should be prepared to stretch your savings for an indefinite amount of time.

When taking a look at the current pandemic, it’s important to think about how we could not have predicted this, let alone how quickly it would develop and how long it would continue. It has had a major impact on families and their finances around the world, and the situation at large is out of our hands. Even though the government and many businesses have provided financial support in many different ways, it’s best to have your own savings so that you aren’t solely dependent on outside help during these times. Take this time to reflect on your current financial situation so you can revise or build financial plans, savings accounts, and anything else that could give you peace of mind during an unexpected challenge in the future.

erin_elis

Erin Ellis
Accredited Financial Counselor
Philadelphia Federal Credit Union
eellis@pfcu.com

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