By JP Olvera
Small Business Banker Manager, Bank of America
Given today’s unprecedented times, more people are stressed about their finances. As a matter of fact, according to a recent study by NextAdvisor 51% of Americans are feeling anxious about their financial situations in the COVID era.
And that’s certainly true here in the Central Valley with businesses closing, layoffs and work furloughs, there are countless causes of financial worry lately. Our clients and community partners share how much more stressful it can be to make ends meet sometimes.
My response to them has been: 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 tense. 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. Free tools like the Bank of America Savings Calculator are available and 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, considering how those may have changed in the past several months and forecasting where they will land when things return to normal. Then list all variable expenses, adding everything from birthday gifts to anticipated home repairs, so 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, please visit BetterMoneyHabits.BankofAmerica.com.