2020 was a difficult year financially for many people. Many businesses were forced to downsize or furlough employees. While we often talk about the workers who made more on unemployment thanks to the extra government benefits, several professionals were laid off and were financially struggling. Just ask any corporate account sales representative!
We’ve seen companies who have had to halt their matching contributions to their retirement plans as well as employees who stopped their contributions because they needed more take-home pay. While some families were able to save more because they spent significantly less on commuting costs, travel and leisure, clothes, and meals out, not everyone was as fortunate. According to a survey conducted by KeyBank, only 41% of respondents said they were spending less and saving more since the pandemic began.
If 2020 taught households anything, it was the importance of an emergency fund. The pandemic was certainly an emergency; therefore, it was OK to tap those funds. However, now that we are beginning to see “green shoots” in the economy as more people are returning to work, it is time to start rebuilding the emergency fund.
What is important to remember is that an emergency fund isn’t built overnight. Most people do not receive a bonus at work and then automatically fund three to six months of expenses. Like all savings, emergency funds are built with baby steps. Those who have been fortunate to become re-employed after a layoff cannot return to the status quo. The financial belt often has to remain tight while replenishing emergency reserves.
If you stopped contributing to your employer-sponsored retirement plan, it is important to resume contributions as soon as possible—especially if there is an employer match. Even if there isn’t a match today, it is still one of the easiest places to save because the funds are generally taken pre-tax before you even see your paycheck.
You also have until April 15, 2021, to make a 2020 IRA contribution. If you paused on any retirement savings, you still have an opportunity to make a contribution to catch up to where you would have been if there had not been a pandemic.
If you are still not working or find yourself working for less than you were, communicate your situation to your creditors. You are not the only one who is in this situation. Remember, this is a pandemic—the entire world was affected. Our government has put programs in place to help with rents and evictions, and their goal is to keep the virus in check with the vaccine rollout and repair the economy. While you can expect to have to repay anything you are behind on, you should be able to negotiate some leeway as you work to become whole again.
As the COVID-19 crisis comes to an end, hopefully, 2021 will provide opportunities to remedy the wrong financial moves that were made last year. It is important to remember the financial lessons learned: the importance of an emergency fund, and how we can survive without lavish vacations or eating out every weekend. These are discretionary spending areas that you have been forced to cut back. Heed the lessons learned and start saving for that next rainy day.
If you have questions regarding your financial situation, the Experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
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