As working parents know all too well, the coronavirus has changed pretty much everything. From shifting to remote work to homeschooling kiddos while working full-time, the entire globe has had to adjust their lifestyles to accommodate the pandemic. As financial advisors, we saw many families panic and realize they were not as financially prepared for unexpected events as they hoped they’d be.
Of those who came to us in need of help, we identified four areas of personal finance that we believe every family needs to be familiar with to feel safer and more in control of their financial situation. Think of these elements like building an outfit (even if our outfits have more often been yoga pants than evening attire these days). Here are a few financial essentials you should keep maintained and coordinated (like any good outfit) as you continue to navigate life in the COVID era and beyond:
The Base Layer: Prioritize Spending
Every great outfit starts with a solid base: a classic A-line dress, flattering jeans or the perfect white tee. All other wardrobe decisions—shoes, purse, accessories, etc.—will be shaped around the base layer. Consider a budget to be your “financial base” and the first layer of your wardrobe. Of course, we understand that creating a budget and choosing a blouse are completely different in practice, but they’re both about planning and control.
You’ve probably shifted your budget at least a little during the pandemic, either by cutting back on spending or redirecting money where it’s needed more. Regardless, sticking to a budget, especially in these times, will reduce anxiety and help you stay focused on things that are important.
Whenever possible, we recommend sticking to the 50/30/20 rule of thumb; allocate 50 percent of your after-tax income to your needs (such as housing, utilities and groceries), 30 percent to wants (Netflix subscription, daily coffees, etc.) and 20 percent to savings and/or paying off debt. Keep in mind, your wants might have a little more flexibility right now, since wants like vacations and date nights might be happening a little less frequently. If this sounds familiar, consider directing some of that extra allocated wants money to one of the other funds so you can feel a bit more secure in your finances.
The Clutch: Planning for Emergencies
If only we had had a crystal ball for this one! While most people typically know their budget base layer, you need to be ready for the what-if scenarios (enter coronavirus). Like any good outfit, it’s probably incomplete without your purse—usually full of everything you might need for the what-ifs. What if you get a headache? What if your tot has an accident? What if you need an extra hat rack (or plant or floor lamp)? OK, so Mary Poppins might have overdone it, but she and her magic bag were on the right track in terms of preparing for the unexpected. Consider an emergency fund to be your financial handbag. Fill it up, just in case.
Like we mentioned, redirecting 20 percent of your paycheck to a savings account, until you have stashed away enough cash to cover three to six months of expenses, is a good rule of thumb. Though we couldn’t have anticipated its effects, the COVID-19 pandemic is certainly an event that warrants utilizing your emergency fund if needed. Having an emergency fund is key to feeling that extra bit of security when the unexpected happens—and it’s never too late to start one.
The Path: Saving for Your Future
No outfit would be complete without a killer pair of heels… or sneakers or slippers, if we’re being honest about what we’re wearing these days. Consider a saving plan as your financial heel; it supports you on your path for life and, if chosen well, will get you where you’re going faster.
There are many factors to consider in choosing a savings vehicle and you’ll likely end up with more than just one. As you save for different financial goals, like your first house, retirement, or kids’ college funds, savings vehicles might include Individual Retirement Arrangements (IRAs), 401(k)s, other retirement plans and non-retirement investment accounts. In the COVID era, you might feel like putting off saving for retirement or putting some of your other long-term goals on the back-burner. Trust us: if you have the ability to save at this time, it’s best to stay on track.
The Finishing Touch: Communicating Your Wishes
Take a step back, look in the mirror and prepare yourself to take one final step toward financial completeness. Consider an estate plan to be your financial accessory; it’s your unique way of expressing yourself, yet it’s easy to overlook.
An estate plan can be your playbook for what happens after your incapacitation or passing. It’s an important financial accessory, yet most Americans do not have one—and it’s especially pertinent that parents have one. Setting up a will, power of attorney, living trusts and naming beneficiaries are hugely important to ensuring your estate is managed in the way you’d want it if anything were to happen to you.
As the pandemic lingers and times remain unprecedented to say the least, we understand that money is a source of anxiety. If you’re feeling overwhelmed, seeking guidance from a financial advisor might be worthwhile. With these few financial essentials in mind, we hope you feel a bit more at ease and ready to feel and look your best financially.
Shannon Eusey is the CEO of Beacon Pointe Advisors, a $12+ billion wealth advisory firm, and a mom of four.