Personal Finances During COVID: Getting Your Financial Life in Order

In my last post, I shared a few financial tips specifically for surviving the COVID-19 crisis, but if you’re working from home and have some extra free time, now is the perfect opportunity to get your financial life in order. 

It can be daunting to introduce another checklist into your life, so consider grabbing your partner or a friend (virtually, of course!) and working through this list together. Personal finances can be an awkward topic to discuss at first, but it helps to have someone to keep you accountable. (Perhaps not being open enough about our finances is the reason half of millennials say they are beginners or know nothing about personal financial management…)

What you can do now to get your financial life in order:

1. Write down your savings goals and categorize them based on timeframe. Maybe in the next year, you want a new computer. In 3-5 years, maybe you’re hoping to put a down payment on a home or go to grad school. Long term, you should use NerdWallet’s retirement calculator to estimate how much you want to plan for.

2. Create a regular routine to look at your budget. You can use apps like Mint or Personal Capital to automatically categorize your expenses. Budgeting doesn’t have to be a painful process. If you “pay yourself first” by directing money to your savings goals (see tip #1) right after each paycheck, you can spend the rest without guilt. (But it is still useful to know if you’re spending more on eating out than your friends do, or spending more than you did a year ago…)

3. Keep paying off your debt. You should focus on paying off high-interest debt (e.g., credit cards) as soon as possible but also have a clear plan to pay off other debt such as student loans. Include this as one of the “pay yourself first” goals in your budget (tip #2) so that you can feel comfortable that you’re on track while you spend money on shopping and entertainment.

4. Build up an emergency fund. If you don’t already have an “emergency fund” of six months of expenses, start building it now with regular savings from tip #2. Consider putting your emergency fund in a “high-yield savings account” (interest rates currently around 1.7%) rather than just the normal savings account at your bank. This will help you avoid stress during a tragic event like losing your job or Coronavirus 2.0.

5. Invest in your future and start saving for retirement now.

a. Saving for retirement in your 20s is critical. (Vanguard has a great graph here showing why.) Even assuming that Congress fixes Social Security’s financial troubles, Social Security is structured to only replace 40% of the average earner’s income. (That’s not enough to retire without your own savings to supplement.) Typically, it’s wise to target saving at least 15% of your gross income for retirement.

b. If your employer offers a retirement savings plan – something like a 401(k), 403(b), TSP, etc. – there will often be a “match” where if you contribute X% of your salary to your retirement, your employer will match some portion of that amount. Don’t leave this “free money” on the table! 

c. If your employer doesn’t offer a retirement savings plan (or even if they do but you are already contributing up to the match) you might open an IRA (individual retirement arrangement) on your own. This is a great way for you to keep saving for your retirement without having to move the account whenever you switch jobs. 

6. Open a brokerage account. If you have your emergency fund, are saving effectively for retirement, and still have additional money that you don’t spend each month, consider opening a brokerage account to invest and save for some of your mid-term goals. Just be careful – trading stocks usually doesn’t work out well unless you have the time to do a lot of research (and often, not even then!) Focus instead on diversified mutual funds or ETFs with low fees (roughly .20% of assets or less each year).

7. Think smart about life insurance. Especially if you are going to start a family soon, it’s important to get life insurance to support your partner or dependents in case something happens to you. If you sign up when you’re young and healthy, you can lock in a low monthly premium for the rest of your life. But be careful – there are a lot of aggressive life insurance agents that will try to sell you insurance bundled with high-fee investment products you don’t need. Do your research and check out Dave Ramsey’s advice on term life insurance.

8. Get a password manager. With all these financial accounts, it will be tempting to use the same password for each account so you don’t forget. Instead, sign up for a password manager that will streamline your life by auto-filling secure passwords. (After all, time is money!)