There’s no denying that 2020 was a difficult year for the majority of people. At a global level, the COVID-19 crisis has caused tens of millions of people to be at risk of falling into devastating poverty, 3.3 billion members of the workforce about to lose their jobs and livelihood, and informal economy workers lack access to quality health care and social protection as they lose access to their productive and financial assets. Behind these numbers are real people who are currently struggling to start all over again after the losses the pandemic and the recession have caused.
But there is plenty to be hopeful about. With vaccines about to be rolled out across the globe, and with the economy on its way to recovery slowly but surely, we can be responsible for what we have now and start cushioning ourselves from the effects of the next global crisis. Here are some key tips for starting over in your financial life in 2021.
Evaluate your financial situation.
Here are some questions to ask yourself as you assess your financial life:
- How is your remaining debt? Will your income be enough to cover your monthly debt payments?
- Do you have enough saved up for a rainy day in case another pandemic or recession happens? How about when you or your family member falls ill, or if you experience a natural disaster?
- Are you up to date on your retirement contributions? Do you have a long-term financial plan for when you can no longer work?
- Are you able to regularly contribute to your monthly personal savings?
If your financial situation seems to be on the right track, consider keeping this positive momentum up by building your wealth through the right investments this year. If not, here are some other steps you need to take:
Update and reassess your budget.
There are plenty of financial upsides to the stay-at-home orders. Here are some expenses you can cut back by staying home:
- Fewer expenses on leisure activities like going to the movies or dining out
- Reduced gas expense if you work from home
- No travel expenses
These saved costs can go directly to your savings funds. Since it’s unlikely that COVID-19 will be completely eradicated in the first half of the year, you can take advantage of this situation to improve your financial health by reassessing your current budget and redirecting your saved costs towards your financial goals. Cut back where it’s possible and let those freed up funds go to more important savings like your retirement plan, investments, and others.
Rebuild your emergency fund and savings.
If you had to dip into your emergency funds last year, 2021 is the time to rebuild it. If you have never had emergency savings in your life, the time to start building one was yesterday. One of the biggest lessons we must learn from the pandemic, and the recession is that unprecedented events can flip our finances in the blink of an eye. Not only will emergency savings keep you afloat if you lose your income stream through a pay cut or a layoff, but it will also help you avoid having to liquidate your portfolio assets at reduced prices in an unstable market.
Get your debt under control.
Here are some steps to managing your debts this 2021:
- Make a list of who you owe and how much you owe them. Prioritize the most urgent one.
- Make at least the minimum payment for every single person or entity you owe.
- Ensure that your other accounts remain in good standing by paying off charge-offs and collections.
- Consult with a collections attorney about your options if debt-collection agencies are starting to get aggressive in their attempts to get you to pay your outstanding balance.
Keep yourself healthy.
You might find it strange that there a tip about health in an article about financial wellness, but physical and financial health are closely intertwined, especially in a time like the COVID-19 crisis. COVID-19 recovery costs vary from state to state, but some of the most widely-reported out-of-pocket costs for pneumonia hospitalizations are around $1,300—and that is on the low-end. Keep yourself healthy by staying home, wearing your masks properly when out, and being diligent with hand-washing and sanitizing.
No matter how bad the past year has been, it’s never too late to take steps to improve your financial situation. There’s a reason why the New Year brings fresh hope to so many—it’s a reminder that life goes on and on, and there is always a way out of a sticky financial situation.