The COVID-19 pandemic has disrupted many of our regular social and business activities. If you are experiencing some abnormal downtime, maybe this is a good time to consider organizing your finances.
Gaining better control of your money is a good idea for any season. And it can be especially advantageous in these upside-down times.
Adjust your budget
Your household budget is the foundation of personal finances. It’s challenging to have an adequate understanding of your financial picture without a budget in place. Your budget can help you reduce spending, or prevent you from going into the red during the month. Which can eliminate some excess stress. Once you have a functional budget, you can use it to plan long-term goals and understand your overall financial health.
One popular framework is the 50-30-20 budget. Beginning with these portions, bucket your expenses accordingly and see how your expenditures add up:
- 50% of your budget is for needs or necessities: like housing, transportation, and food
- 30% is for wants, such as dining out, travel, movies, and subscriptions
- 20% is for debt repayment and saving
Those numbers aren’t set in stone. Your situation may be different; however, using a standard outline will help you find a budgeting structure that’s optimal for you. Feel free to work up a couple of different budget scenarios, maybe a 55/15/25 budget if you want to repay debt more aggressively. Ultimately you have to find what works best for you and your life.
Prioritize your debt repayments by interest rate
This might be a time to decide if you would like to pay your debts more strategically, consider arranging them from highest to lowest interest rate. The longer it takes to repay high-interest accounts, the more it ends up costing you in interest payments over time. Prioritizing your debt payments by interest rate will help you pay the least amount of interest over time.
Group and rank debts by interest rate. Example of common debts accumulating interest:
- Credit cards
- Personal loans
- Mortgage or home equity line of credit
- Student loans
- Car loan
- Any other debt accounts
If you prefer to reduce your overall monthly payments, instead, prioritize your debts by paying off the smallest debt first and “eliminating” that payment from your monthly budget as quickly as possible.
Improve cybersecurity by updating the sites that store your payment information
A bit of regular data hygiene and updates can help protect you from the impact of cyber crimes and data breaches. Various sites where you have an account and make purchases store your payment information. Any site that stores your data could potentially be a gateway to your finances. Consider some of the most recent data breaches to see if your information may have been compromised and to understand the need to minimize overall exposure.
To lessen your chances and mitigate that risk, be sure to disconnect your payment and financial information from unused accounts—including subscriptions you’ve paused or cancelled. Any old accounts should also be scrubbed of your personal and financial data, when appropriate.
Review your insurance coverage
Your insurance needs are dynamic. They change as you experience life changes, like a growing family, or gaining new assets. However, frequently checking your insurance coverage isn’t likely to be high on anybody’s to-do list. If you’ve got the time, evaluating your current coverage and your needs can help you plan your finances better.
Look at your auto, home and life insurance, as well as any other policies. Does your coverage meets your needs? Research policy options with your current provider and its competitors to bring your coverage in line with your needs. Exercising a rider option, deferring premiums, and increasing or decreasing insurance coverage can all be options to better fit your budget.
Contact lenders and creditors about payment assistance
Reach out to your lenders and creditors to find out what kind of Covid-19 relief programs they are offering. Under the CARES Act, a mortgage forbearance program may allow you to delay your mortgage payments for at three months and potentially up to a year. Reach out to see if you are eligible for the AAGCU Emergency Skip Payment programs.
Many auto lenders and credit card companies will let you extend or defer payments for one month or more without incurring late fees. But you have to ask.
Ask-for-Help
Sometimes all the planning in the world can’t prevent financial emergencies. If you find yourself unable to make your loan payment or facing significant financial duress, let us know. As an AAGCU member, you have multiple resources available to you, and we may be able to help. Make sure you talk to us before the payments get too large or are missed.
If you have more questions, or want to learn more, check out our Financial Education Resources powered by Banzai. There are plenty of articles, calculators and more to help you learn what to do when life throws you a curve.
We even have Banzai for kids! Learn how to budget, and what that can mean in their long-term financial health.
What questions do you have when it comes to budget?
Email mmccluskey@aagcu.org and we may feature your question in future posts!