It’s probably no surprise that Americans have become increasingly stressed about their finances. A survey by financial services company John Hancock found that less than 40% of respondents were feeling moderate or extreme financial stress before the pandemic. Now, more than 60% have a major level of financial stress. And the majority don’t think things will get better in 2021.
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Keep in mind, though, that there still is time to improve your financial situation this year. That might seem easier said than done. But if you take these steps now, you’ll be on more solid financial footing when the new year begins.
Be More Prepared for Emergencies
Get financial and personal documents in order. “We have learned many things during the pandemic, and one of them is the importance of getting organized,” said Marsha Barnes, founder of The Finance Bar. Create an in-case-of-emergency file with a copy of your health insurance card, insurance policies, estate planning documents (will, power of attorney and living will), a list of financial accounts with usernames and passwords, and a list of your prescription drugs, health conditions and medical history. Store it someplace safe and let loved ones know how to access it if there is an emergency.
Create an emergency fund. The pandemic is a reminder to build emergency savings to protect yourself from financial shocks that you can’t control, said Amy Shepard, a certified financial planner® professional with Sensible Money. If you’ve been spending less on shopping, commuting and dining out by staying home during the pandemic, put those savings into a high-yield savings account, she said. The goal is to save enough to cover three to six months’ worth of expenses.
Buy life insurance. If you have loved ones who count on you for financial support, you need life insurance to protect them if something happens to you. You can apply for a term life insurance policy online and possibly be approved for coverage in a matter of minutes from companies such as Bestow, Fabric, Haven Life and Ladder if you’re young and in good health.
Manage Credit and Debt
Check your credit report. If you see any errors on your report, act quickly to fix them because they could be hurting your credit score — which, in turn, can hurt your ability to get loans or lines of credit, said Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling.
Evaluate subscription services on autopay. Review your bank and credit card statements for subscription services that are being paid automatically to see which you should keep and which you should cancel. “You could potentially save hundreds or thousands of dollars by kicking some services to the curb,” McClary said.
Don’t let credit card rewards expire. If you’ve accumulated a lot of credit card rewards points, check when those rewards points expire — in particular, travel rewards points. If you can’t take advantage of travel rewards, see if you can cash them in on goods or services.
Make a debt payoff plan. To pay off what you owe, make a list of your debts and the interest rates on those debts. Focus on paying off debts with the highest rates first, said Larry Sprung, founder and wealth advisor for Mitlin Financial. Review how much money you have coming in versus how much is going out to see how much more you can put toward your debt each month.
Keep Reading: 30 Ways To Dig Yourself Out of Debt
Stay on top of student loans. Federal student loan borrowers haven’t had to make payments since March 2020 as part of coronavirus relief efforts. However, if you have extra cash, making payments now can accelerate your student loan debt payoff, Shepard said. The full amount will go to your principal because interest isn’t accruing on loans now. If you have continued to make payments since they were suspended in March and are struggling financially now, you may be eligible for a refund, she said.
Reach out to lenders for help. Call your lenders to see what options you have if you’re struggling to make payments. “There’s so much at stake that you owe it to yourself to take that chance to pick up the phone,” McClary said. You also could reach out to a nonprofit credit counseling agency through NFCC.org to get a free consultation, he said.
Save For Your Future
Boost retirement savings. If your income hasn’t taken a hit and you’ve been spending less as a result of the pandemic, increase your contribution to your workplace retirement account before the end of the year or open an individual retirement account such as an IRA or SEP. “Not a bad Christmas gift to your future self by putting some of the money aside to invest wisely,” said Henry Hoang, founder of Bright Wealth Advisors. Plus, contributions to a retirement account can help lower your tax bill.
Think twice before raiding your 401(k). The CARES Act increased the amount you can borrow from your 401(k) from $50,000 to $100,000. It also waived the 10% penalty on early withdrawals. However, you should consult with a financial professional before borrowing or taking a withdrawal from your retirement account, Sprung said. “It may be an easy place to get money but it may not be the smartest,” he said.
Get a Handle on Taxes
Make estimated tax payments. Freelancers and gig economy workers must make estimated tax payments throughout the year on their earnings. There’s still time to make at least one payment if you haven’t already by filing Form 1040-ES by the Jan. 15, 2021, deadline. This might help you avoid having to pay a penalty when you file your tax return.
Pay taxes on unemployment income. Be aware that unemployment benefits are taxable. “It’s a good idea to review your tax situation to make sure you have had enough tax withheld so you can avoid a surprise bill when you file next year,” Shepard said. If you didn’t choose to have taxes withheld from your unemployment benefits, you can make an estimated tax payment by Jan. 15, 2021.
Get a tax write-off for your generosity. This year, you can write off $300 in cash contributions to charities even if you don’t itemize (typically, you must itemize to get this deduction). Make donations before the end of the year to take advantage of this tax break.
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