As more people get Covid-19 vaccinations and the U.S. reopens, people may be wondering what they should do to get on track with their money during an economic recovery.
There are signs that the economy is about to take off. Businesses across the U.S. are reopening as states loosen virus-related restrictions, and employers are hiring again.
In March, non-farm payrolls jumped by 916,00 and retail sales increased nearly 10% following the third round of stimulus payments. At the same time, last week’s jobless claims dipped to 576,000 — still a staggering number, but the lowest since the pandemic surge of layoffs began.
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“I think the economy is ready to rip,” Federal Reserve Governor Christopher Waller told CNBC’s Steve Liesman during a Friday “Squawk on the Street” interview. “There’s still more to do on that, but I think everyone’s getting a lot more comfortable with having the virus under control, and we’re starting to see it in the form of economic activity.”
Still, many households are still dealing with the impact of the pandemic and will be for many years, even as the economy recovers. And, even those who weren’t hit as hard by Covid may need to reassess their finances, as lockdowns have shifted priorities and spending habits.
What’s more, money experts say after being caught off guard by the coronavirus pandemic, many Americans may now be more mindful about being prepared for the next possible economic downturn.
Here’s what experts recommend people focus on as the economy reopens and recovers.
1. Rebuild emergency savings
The pandemic was a complete surprise and showed many Americans just how unprepared they were to withstand an emergency. Now, as the U.S. rebuilds the economy and more people are going back to work, bolstering emergency savings should be top of mind.
“The best financial practices pertain through bad times and good,” said Mark Hamrick, senior economic analyst at Bankrate. “We’d strongly counsel to make emergency savings a priority.”
A rule of thumb followed by many financial experts is that people should have three to six months of living expenses in an emergency savings fund. But 13 months into a pandemic that’s left millions unemployed, people may be rethinking their savings goals.
“That should make people think a second time about using the rule of thumb, and actually think of their own specific situation,” said Dana Menard, a certified financial planner and founder and CEO of Twin Cities Wealth Strategies in Maple Grove, Minnesota.
Depending on their career, industry, family and specific needs, some people may want to save more — or even less — in an emergency savings fund to prepare for the next event.
“Three months is just the starting point,” said Tania Brown, CFP and coach at SaverLife, a nonprofit focused on saving.
2. Pay down debt
Another high-priority financial goal that experts recommend is paying down debt, especially for those who might have taken on more to keep themselves afloat during the pandemic.
“If you took on $25,000 of debt, you can’t manage your finances like you don’t have $25,000 of debt to pay off,” Brown said. That means that people should come up with a game plan for paying off debt with one of many strategies, such as paying off high-interest debt first or focusing on the debt that’s easiest to get rid of quickest.
Now is a good time to plan for debt management, according to Brown. In the last few months, with a third round of stimulus checks and tax refunds going out, families especially could have thousands of extra dollars to deploy.
Of course, some people may want to pay down their debt before they build up emergency savings or work towards both goals simultaneously.
If people can afford to work towards multiple financial goals at once, they should, said Menard, adding that not everyone has that ability.
3. Rework your budget for the new normal
Last year was unusual, and for many that resulted in drastic changes to their set budget. Whether people lost work and had to find other sources of income or found that they had extra money from canceled trips, budgets may need updating.
This is also important as people begin to reenter the world as it opens post-pandemic. They should be extra careful not to let their excitement lead to overspending, Brown said.
It’s also a good idea to check to see if the cost of certain goods and services are the same or have changed due to the pandemic.
“Be mindful of inflation creeping in — things might cost more,” said Marisa Bradbury, CFP, CPA and investment advisor at Sigma Investment Counselors in Lake Mary, Florida. “Really factor in what that inflation is going to be — what you think that you had budgeted before might not be enough.”
If you do have money to allocate to fun things such as entertainment, shopping or travel, Bradbury recommends checking back in with your budget and setting aside a specific amount to guard against overspending. This is especially important for those in retirement living on a fixed income, Bradley said.
4. Recalibrate and revise your financial goals
As the U.S. moves on from the pandemic, people should also reassess their long-term financial goals. The past year set millions of Americans back in many ways, and for some that meant pushing off milestones such as buying a house or car.
“If they were hammered by 2020, they may have to push out retirement for a couple of years; that’s OK,” said Brown. “They may have to get some of those financial fundamentals taken care of first.”
Even as the economy recovers, however, getting back to pre-pandemic finances won’t happen overnight, according to Brown. And, people should be aware of that and adjust their expectations accordingly.
“What worked in 2019 or even 2020 may not work now,” she said.
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