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The world has changed and, as a result, our views on money and how to manage our finances may have shifted. I know mine have.
Advice that worked in 2019 or 2009 might not work now. So what does work?
I stopped by the NBC Today Show earlier today and shared the top new money “rules” I believe are necessary to adopt right now.
Pay down debt first, then save money.
Prioritize saving before paying down debt.
When it comes to managing debt, I used to recommend a hybrid method of tackling saving and paying down debt at the same time. My other recommendation was to prioritize high-interest debt before bulking up your emergency fund.
But an uncertain economy and high unemployment changes that equation. If you’ve lost your job or don’t have a 6-to-9 month rainy day reserve for yourself, then your first move is to get cash in the bank.
Focus on saving, saving, and saving more. Meanwhile, to manage debt, take advantage of payment plans offered by credit card companies or credit relief programs to help people impacted by the pandemic.
If an uncertain economy has you worried about your retirement investments, do nothing and stay the course.
If you’re really stressed, stop and revisit your portfolio.
If concerns over the stock market keep you up at night, know that you’re not the only insomniac. But constant worry is a sign that you should, at the very least, take a look at your portfolio and ensure you’re invested properly.
Warning: I’m not saying to pull all your money out of the market based on a bad night’s sleep. But it’s OK to pay attention to your emotions and revisit your investments if you’re anxious.
It remains critical to invest in a way that is both logical and personally satisfying. In order to grow your money over the long-term, a diversified stock portfolio is more advantageous than a zero-interest-bearing checking account. From there, it’s best to create a portfolio that’s adjusted for your goals and level of risk tolerance.
If you revisit your portfolio, you might discover that you’re actually overexposed to the stock market because you’re not as risk tolerant as you thought. Maybe your views have changed since you began your retirement account 15 years ago.
When our lives change, it’s worth re-examining all of our finances, including our retirement plans.
Before you make any moves, it’s always best to chat with a financial professional. If you have a 401(k) through your workplace, there’s usually a pro you can talk to over the phone.
Never make an early withdrawal from your 401(k).
If you absolutely must, you can take advantage of penalty-free withdrawals from your 401(k) before the end of the year.
The traditional advice is to avoid cashing out investments from your 401(k) before age 59½, largely because you can incur hefty taxes and penalties and seriously threaten your retirement savings.
But my outlook has changed. These are exceptional circumstances, and tapping your 401(k) might be the only way you can afford essentials like food for your family or paying your rent or mortgage.
Fortunately, Congress has temporarily reduced the financial penalty of early withdrawals. As part of the CARES Act stimulus package, an individual can take out up to $100,000 from their portfolio in 2020 and be exempt from the 10-percent penalty, as long as the money is earmarked for pandemic-related reasons. Plus, if the money is paid back over the next three years, you can avoid the taxes. In short, withdrawing early right now can be less of a long-term financial setback if you play by the rules.
If your 401(k) is the only resource you have left to remain financially afloat, by all means, use it.
Check your credit report once a year.
Check your credit report once a month.
Normally you’re limited to checking your credit report for free once every 12 months, but that has changed. The credit bureaus collectively agreed to allow consumers to check their credit reports as often as once per week through annualcreditreport.com.
The once-a-week allowance will last through at least April 2021 and, as I wrote about in my recent piece on the credit report complaints, I urge everyone to review their reports at least once per month to ensure lenders are properly reporting your accounts.
Complaints about credit reporting are at an all-time high in the current recession and you need to make sure your account status is being reported accurately. For example, if you are on a special payment plan like a deferment with a lender due to Covid-related constraints, your account should say “current” and not “delinquent,” per the CARES Act.
Financial success is always possible through hard work and pulling yourself up by your bootstraps.
Do your best, but don’t try to go it alone. Ask for help.
No one is immune to the realities of 2020. You may have followed the traditional personal finance playbook. You may have saved and worked hard. But doing things “right” still can’t protect you from a medical emergency, getting laid off, or being discriminated against because of your race or gender. It’s still impossibly easy to fall behind or find yourself in a precarious situation.
This year has proved that becoming financially successful isn’t an individual effort. You need to have a support system. It’s important to ask for help, ask questions, and reach out to people who can assist you.
Check out the National Foundation for Credit Counseling for credit and budgeting support, as well as your local credit union that may have programs to help you get back on your feet. Your credit card company may also be able to modify your payments to make them more affordable for a while.
Be honest about what you need and know that there are resources, information, and people who can help you. You don’t have to bear the burden alone.
Covid-19 has forced us to adapt in all aspects of life, including our financial lives. Don’t be afraid to let go of old ways of thinking and find a new way forward.