When creating and managing a financial plan, we try to think of the worst, the best, and the most likely scenarios. Even so, no one ever predicted a worldwide pandemic would kill and sicken millions, put even more out of work, and keep those of us who are lucky enough to be able to work from home pinned to our computer screens. Both our clients and we have faced the good and the bad things that life usually brings, except we did it under a greatly altered reality.
The vaccine is here. We’re hopeful that by Labor Day things will seem a bit more normal. In this difficult time, many of our clients have found silver linings that make life better for themselves and their neighbors. Following are some of these lessons that may improve your financial security so you can be there for your family and your community.
Spending Purposefully to Build Savings and Pay Off Debt
Three months into the shutdown, we met with a couple who ecstatically announced that they were about to pay off their five-figure credit card debt. One more paycheck and they were done. They had converted their restaurant and entertainment spending into extra debt payments. Paying the credit card balance as they received each paycheck meant reducing a big balance when the statement closed as well as serving to temper their spending. They also worked to keep the balance from rebuilding once they resumed dining out. Paying the cards mid-billing cycle helped their credit scores because a lower balance is reported to the credit bureaus as the final statement balance.
Tracking Expenses
If you cover your bills easily each month, it may seem hard to justify the time and attention it takes to track your expenses. We get that. For many clients ‘COVID-times,’ as some have called the past 12 months, have changed what they thought their near- and far-term future might look like. Some clients plan to move closer to family, some have moved at least part-time to their vacation homes, and some have bought or rented homes further from work. Clients whose job stress levels increased are thinking of retiring earlier; while others, released from their commutes, are planning to work longer if their jobs stay remote. Many of these changes happened quickly, and those decisions were smoothest for those who already had good estimates of their expenses.
There are many ways to track expenses: apps like
MINT and
YNAB, budget trackers on bank and brokerage websites, credit card annual reports, Excel worksheets, and paper and pencil all work depending on your preferences. Remember that expense tracking doesn’t need to be fancy to help support financial goal planning. First, understand your housing and kids costs. The remaining items are personal expenses. For many plans, you don’t need more detail that than that.
Automating Savings
Many clients faced pay reductions last year. Some of those whose pay went back to normal increased their retirement plan contributions at work or started automatic savings to their investment or IRA accounts. This year we had several parents and grandparents start or increase their monthly 529 plan savings to qualify for state tax credits where available.
Our Perspective
I’ve often thought how fortunate we at Compass Planning are to work as financial planners. Ours is a view that few people see. Because of our clients, we have come to understand how the world, our choices, and, sometimes, pure chance shape our access to financial security. If we are open to them, the lessons of COVID have and will uncover unexpected paths to improve our future.
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