In this week’s Thursday Three, we talk about the recent executive order to defer payroll taxes. The idea of some financial relief in the midst of COVID-19 is an appealing one. But it’s not one without future consequences. Today’s “extra money” is tomorrow’s problem – when the new year will bring with it the expectation that those funds be repaid. Tongue-in-cheek we referenced this being the equivalent of “I’ll gladly pay you Tuesday for a hamburger today.” (Any Popeye fans out there?)
In crisis mode, short-term fixes sound great. We’re drowning and someone is offering a life raft that we’re excited to clutch to our chests. Maybe we don’t see that there’s a pin-size hole that’s slowly leaking air. Or maybe we know that a short-term answer isn’t going to fix a bigger problem — but with nothing else looking like help, we settle for what we can get and hope we’ll figure it all out before any reckoning.
In an ideal world – we’ve all got enough cushion to navigate an emergency like a broken appliance or a lost job or a global pandemic (or hello Murphy – all of the above at the same time.) But most of us don’t live in an ideal world. And in today’s crisis, it’s not terribly helpful to hear about what we could-have-should-have done to avoid catastrophe. Even from those with the very best of intentions for us.
Instead of looking at what we should have done differently in the past, let’s commit to taking the necessary steps to ensure we’re better prepared and positioned for whatever surprises the future throws our way.
Know where you stand. Contrary to the popular expression, ignorance is not, in fact, bliss. It’s time to gain some clarity on your total financial picture — the good, the bad, and the ugly. Not sure where to start? Check out MyMoneyCheckUp® from our friends at the National Foundation for Credit Counseling (NFCC). And let’s decide right now that we’re excited to learn where we can improve things rather than beat ourselves up over past challenges. Agreed?
Tell your money what to do. Okay, nobody’s asking you to talk to your money (although we’d love video if that’s a thing.) But a budget is a simple tool that allows you to track what’s coming in and where it needs to go in a way that makes the most sense for your family’s financial situation. Need a head start on creating a budget? MilCents is a free, self-guided financial program that will help you understand your current financial situation, create a budget, save, invest, and more.
Think ahead. You can’t unring any bells you’ve rung in the past. But you can position yourself to be better prepared moving ahead. And the easiest way to do that is to create an emergency fund. The experts recommend having an emergency fund that’s the equivalent of between 3-6 months’ of living expenses.
“How am I supposed to save for the future when we’re struggling now?” you might be thinking. And it’s a fair question, especially during times like those we’re living in right now.
It sounds self-righteous when people tell us to just give up that Starbucks habit or stop eating out so much — who’s really doing that these days? And maybe 3-6 months of savings just isn’t a reasonable goal at this moment. But you can open a savings account if you don’t already have one. And you can commit to making it a priority to “feed” that account every chance you get. Sofa cushion change? Savings account. Unexpected refund? Savings account. You figured out how to repair that leaky kitchen sink instead of calling in a plumber? Savings account.
See a pattern here? Even if it takes a long time for you to get to the recommended amount in that account, anything you’ve got there will be money you can use towards the next financial hit. And then you feed that account again. Progress, not perfection, is your goal. Want to learn more about why and how to set up an emergency fund? You’ll find a great article from our friends at FINRA here.
Take advantage of these strange times.These times feel chaotic and uncertain for most folks. But with the right resources, habits, and mindset, this is also a great opportunity to set a plan in place to make sure the next challenge life throws your way doesn’t knock you off your financial path!