So many of my customers around the Denver area tell me they are stressed about their finances. Layoffs, pay cuts, college tuition bills — there are countless causes of worry, especially during these challenging times.
My response to them: now is the best time to `reset' your finances by examining your situation, redefining your goals and creating a plan that sets your family up for financial success for years to come.
Here are a few tips for jumpstarting that process.
Step 1: Understand financial stress
Managing your finances, especially during challenging times, can be stressful. But if you break it down, you'll quickly see that financial peace of mind comes from having a handle on several small, and very manageable, aspects of your finances.
Start by listing out your finances — income, spending, saving, rent, mortgage payments, credit card debt, etc. — and prioritize which items need your attention first. Then, seek tools and resources that help you along the way. Tools like the Bank of America Savings Calculator can help you calculate how long it will take you to reach a specific goal.
Step 2: Revamp your budget
Unexpected situations such as the coronavirus will require most folks to rework their budget. The monthly budget is the single most important tool for staying on track, keeping you accountable to your financial plans and helping you reach your goals.
Start by identifying all fixed expenses, and consider how those may have changed in the past several months and forecast where they will land when things return to normal. Then list all variable expenses, adding everything from birthday gifts to anticipated home repairs, so that every dollar has a job. If necessary, adjust your variable spending so you are not spending more than you are bringing in.
Step 3: Lower your borrowing costs
If a significant portion of your budget is tied up in loan payments, now is a good time to evaluate your borrowing and, potentially, reduce the amount of money you owe each month.
With interest rates especially low right now, homeowners may consider refinancing their mortgage loans, particularly if they can reduce their interest rate by one percent or more. If you're paying down a credit card balance, it may be worth exploring your options for a low-interest account. Depending on your credit, you may qualify for a credit account with zero percent interest on balance transfers, which could help you on your path to eliminating debt.
Step 4: Plan for the unexpected
Even if your family hasn't lost any income, these past few months may be a reminder of the importance of emergency savings. Additionally, conversations such as life insurance, disability insurance and retirement are likely to come up as you start thinking about your financial future.
An emergency fund of up to six months of expenses can help bring peace of mind to families planning for their futures. Jump start your emergency fund by cutting a couple variable expenses from your budget and setting up an automatic transfer into a savings account, helping you avoid temptation. Further, review insurance coverage across the board to ensure it meets the needs of your family today, and for the next several years to come.
These past few months have reminded us of the importance of being prepared for whatever may come our way. As you continue navigating this `new normal,' you will find that small, simple changes can help you recalibrate your finances, plan ahead for your future and gain peace of mind in your financial life.
For more in-depth resources on a variety of topics, visit www.bettermoneyhabits.bankofamerica.com.
Kevin Rose is the consumer banking market leader for Bank of America
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