Spring has sprung…but we’re mostly all stuck inside. Since you’re probably on a spring cleaning spree now that you’re spending so much time at home, here are some tips to help you spring clean your finances while you’re working remotely.
How to Get Your Finances in Order While You’re At Home: Tips for Spring-Cleaning Your Financial Life
While we all start adjusting to our “new normal” of working remotely for the time being and doing our part to flatten the curve – you probably have a bit more time in your day now that you are not commuting/running errands/picking up kids. Here are some helpful ways you can use that extra time to consider financial tasks you may have been putting off.
Plus with all the recent volatility going on in the markets, it’s now more important than ever to start maximizing your earnings and build up those emergency funds.
Here’s a check-list of financial “to-dos” you can start crossing off to get your finances in order while you’re spending time at home:
Make sure you have sufficient emergency funds.
It’s not too late to start your emergency fund if you haven’t already. We typically recommend 3 to 6 months of expenses in cash, but there isn’t a magic number to hit as that number is based on your needs. In a recent study Personal Capital conducted, the median savings amount for users in their 20’s is $3,740*, which is barely enough for three month’s expenses (rent, bills, groceries, health insurance, etc.) when you see that the average rent for a one-bed is $1,216. Make sure you save your emergency fund in a liquid account that’s FDIC insured. Personal Capital Cash™ is a good option for keeping your emergency funds safe – it offers competitive FDIC insurance and flexible deposits and withdrawals.
Start saving more.
Like most people now working from home, your spending is likely to decrease now that you are not commuting, buying lunch or indulging on daily coffee habits. Now is a good time to make saving even easier for yourself, like setting up automatic deposits each time your paycheck arrives. You might also consider putting a portion of your tax refund towards your rainy day fund.
Do your taxes.
Right now is a good opportunity to do your taxes. Tax filing deadlines have been extended 90 days. If you expect a refund, it is better to file sooner but if you are going to owe taxes, consider waiting to file until closer to the deadline. It is still a good practice to know where you stand though on what you will owe even if you don’t file now. The extension will also give you a bit more time to save up if need.
Get a complete picture of your financial health.
This is also a time to sign up for services like Personal Capital to have a 360-degree view of all your assets and debts in one place. Just don’t pay too much attention to the dollar amount in your retirement accounts right now. In uncertain times like these, focusing on what we can control is the best thing we can do for our finances. Monitor your cash flow, set budget goals and get a holistic view of your financial life.
Do an investment check-up.
It is always a good time to understand what you own and what the risks are – especially for concentrated stocks. In this environment, even names that seemed safe are prone to high risk. Consider using this time to self-reflection on what your true risk tolerance is. Risk tolerance is an individual’s willingness to take on risk for a potential gain. Individuals should understand that your risk tolerance is an attribute that is actually stable over time and shouldn’t fluctuate based on current market conditions or views, but for those new to investing, sometimes it takes a bear market until they can truly assess the level of risk they can tolerate. You want to make sure your portfolio is consistent with your risk tolerance.
Check your asset allocation and the level of risk in your portfolio with Personal Capital’s free Investment Checkup tool.
Get in sync with your partner.
Now is also a good time for spouses/significant others to get up to speed on the family’s finances and make a cohesive plan and view on spending/saving/investing. What’s your plan if one of you loses their job? What are your big savings goals this year? This might be a good time to have those conversations and reduce stress as well in uncertain times.
Make efficiencies in your budget.
Take a look at what your spending each week/month and try to find one item that you can reduce or remove to save some money. Just small tweaks can save you money over time.
Take a look at your credit report.
Check your credit score and report to make sure everything is accurate, and dispute any errors. Sign-up for automatic alerts if your bank allows so you can actively monitor your credit score.
Check-in with your financial advisor.
With social-distancing reaching new levels, this is also a good time to check in with your advisors virtually on your long-term plan. If you don’t have an advisor yet, find an online advisor, like Personal Capital, to go over your goals and make a plan together.
Consider upping your 401k contribution.
If you are young and have multiple decades ahead to invest for retirement consider, upping your 401k contributions if you are comfortable with buying at lower levels, although don’t confuse that with market timing or calling the bottom – the market may continue to fall.
*Data presented represents the average and median dollar balances of money market, savings accounts and CDs linked by users of Personal Capital’s dashboard across several age ranges as of 1/31/2020. Certain accounts, such as test accounts, major outliers, duplicative spousal accounts, and retirement accounts were excluded from this analysis.