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Given the challenges of pandemic life, many financial tasks may have stayed on the back burner this year as we all tried to just make it through each day. At the same time, the pandemic had a big impact on our financial lives, and some money-related to-do's are likely in order.
Now that it's spring, it’s a good time to conduct a thorough review of your finances and address any neglected areas. Here’s how to spring clean your finances after a year of pandemic living.
1. Update your budget
Your spending patterns might have totally changed over the last year: According to the Federal Reserve Bank of St. Louis, travel, hotel, restaurant and bar spending fell during the pandemic, while grocery and beverage store spending went up.
So it may be time to create a new budget that reflects current expenses, says Curtis Bailey, certified financial planner and founder of Quiet Wealth Management in Cincinnati. “Covid changed spending patterns last year, and potentially going forward,” he says. He suggests anticipating what habits you plan to continue beyond the pandemic and avoiding any drastic changes, such as buying a second home, until you’ve done a thorough analysis of your needs going forward.
Shea Newton, CFP and president of Financial Journey in Leesburg, Virginia, recommends redirecting some of that previous spending into an emergency savings account. Some people, she says, may want to replenish their emergency fund after dipping into it over the last year, or boost it to a higher level, given the income uncertainty many people continue to experience.
2. Set new financial goals
Looking forward to beyond the pandemic, you might want to set new financial goals, such as finally taking a big vacation or finding a job that allows you to continue working from home. “You may be reeling, trying to figure out your direction again. Ask yourself what is truly important” and whether your current spending reflects that, suggests Andrew Mitchell, CFP and financial advisor at Fiduciary Financial Advisors in Grand Rapids, Michigan. If you want to go on a big trip but much of your spending currently goes to daily expenses, then you may need to adjust your budget.
Mitchell also suggests asking yourself if you’re prepared for the next catastrophe. Looking back, do you wish you had had a larger savings fund going into 2020 or more diversified investments? Reflecting on those questions can help you set new goals that will help you get through the next challenge, he says, whenever it may arrive.
3. Review your insurance coverage
The pandemic has had a big impact on our homes: Not only are we spending more time inside them, often with more expensive technology and other items to help us work or attend school from home, but housing prices have also increased. According to the Federal Housing Finance Agency, home prices rose 10.8% between the fourth quarters of 2019 and 2020. You might need more insurance coverage than you currently have, says Noah Damsky, principal of Marina Wealth Advisors in Los Angeles.
The cost of building materials has also gone up, which means it would cost more to replace a damaged home, he adds. His firm recently helped one of its clients increase their dwelling coverage by 40% to better reflect how much it would cost to rebuild the home today.
Damsky also recommends increasing coverage for water damage. “Since we’re spending more time at home, we’re likely using water more frequently, and the potential for plumbing issues increases.” If you rent, then renter’s insurance is crucial. Apartments carry a higher risk for flood damage with so many people at home straining the shared infrastructure, he says.
4. Streamline subscriptions
Because of all the time spent at home, many families increased their spending on subscription services such as Disney+, Netflix and HBO. As we all start to leave the house more, it might be time to scale back, suggests Jason Dall’Acqua, CFP and president of Crest Wealth Advisors in Annapolis, Maryland. “Cancel the subscription services that you will no longer be using as much and realign your budget with more normal circumstances,” he says.
5. Update your credit card
If your spending patterns have changed, you might also want to consider a new credit card that better maximizes your current lifestyle. Bailey suggests first logging into your credit card accounts and pulling up a summary of last year’s spending, as well as the rewards that you earned.
Did you maximize your reward earning potential and redeem those rewards in valuable ways? If you spend a lot on takeout or restaurants but your current credit cards don’t reward you for that spending, then it might be time to apply for a new card that does, he says.
6. Zero out mobile app balances
Given the rising popularity of payment apps like Venmo, PayPal and Cash App, it’s a good idea to check your balances: NerdWallet found that about two-thirds of mobile payment app users say they have maintained a balance in their accounts, which means they aren’t earning interest on that money. Instead, consider transferring your cash into a high-yield savings account.
“Interest rates are low right now, but if you get into the habit now of moving money into your savings account, when interest rates rise, you will see a bigger impact,” says Newton.