One side effect of the pandemic was that people who had to stay home and couldn’t work were not able to cover their costs with the little bit that they got from unemployment and EIP payments.  We aren’t talking about the servers in your favorite restaurant who made more staying home than they did from tips in a normal week.  We are talking about the people who had to dip into their savings, if they had them, to cover themselves during this period.  

Now that everyone is mostly back to work, it’s understood that we need to do a better job of investing and saving.  Here are some tips to help you out with that.

Start saving now and make it an automatic deduction.  If you work for a company that has a 401(k)-retirement plan, you will be putting some money away automatically. Most companies do a pre-tax 3% from the paycheck.  This is pretty low, so you should increase it if you can.  You can also have your direct deposit check send a portion of every check into a savings account.  If you don’t see it in your checking account, you won’t miss it.  Some people use programs like Acorn to automatically take some money and squirrel it away every week or month.  If you don’t have to physically deposit the money, it’s easier and it’s also fun to check it and see how much you’ve managed to save.  Remember, every time you get an increase, you should increase the amount you save as well.

Plan for the worst.  This is one of the things the pandemic taught us, right?  According to a Federal Reserve survey back in 2020, a third of all Americans couldn’t handle a $400 unexpected expense, let alone something bigger.  It’s a good idea to have an emergency reserve fund, even before you start your investment savings.  Ideally you should have a six-month reserve, and the older you get the higher that reserve is.  You don’t want to have to accumulate credit card debt with the high interest charges, and you don’t want to break into your IRA as you will pay a penalty.  Even if you have to cut back drastically for a few months in order to get that reserve going, it’s worth it.  Don’t forget if your financial crisis comes from losing your job and you need this money to tide you over, you’re also going to have to pay for any health insurance that your employer is no longer covering.

Live within your means.  We all know you shouldn’t spend more than you earn, that’s a given.  What happens to most of us is something called Lifestyle Creep – where your expenses increase (a nicer car, better vacations, new electronics, etc.) as your salary increases.  The thing you didn’t increase was your retirement or savings proportionately.  Let’s say you’ve got kids and you finally get them into kindergarten and can stop paying those exorbitant daycare fees.  A good choice would be to keep paying that money, but into a savings or retirement account until you build a little nest egg.  Don’t assume that you will somehow catch up on your savings without taking action now.

Invest for the long term.  If you are new to investing, you may have invested in bitcoin, or some other social media driven stock and then sold it when you got scared.  The stories of instant wealth are tempting, but you should be investing for the long term.  If you invest now in good stocks from reliable companies or an index fund and leave it there for 20 years, you have time to ride out any dips and still come out on top.  Should you invest in stocks or bonds?  The classic rule of thumb is to subtract your age from 100 and that’s how much you should have in stocks.  For example, if you are 30 you should have 70% in stocks.  With a company like Wyzer, you can ask for advice, follow blogs and take advantage or the expertise that is there.  And you aren’t being advised by somebody who is only looking out for their commissions.

Finally, don’t forget about taxes!  Any income you earn, including that from selling shares, is taxable.  So, before you sell shares or take money from your retirement fund make sure you have enough money, so you won’t be wiped out by the taxes.

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