As you know by now, we’re big fans of the 50/20/30 budgeting system. This particular budgeting method allocates 50% of your post-tax income toward needs like housing and food, 30% toward your wants, like Netflix and take-out, and 20% toward your investments, which speak for themselves. Focusing the majority of your money on what you need and want gives you the confidence, flexibility, and understanding you need to make the most of your budget.
The best part: while you may be focusing primarily on short-term goals with this budgeting method, your investments are close behind. The 50/20/30 style gives you the best of both worlds. Once the COVID-19 economic stimulus payment has landed in your account, your needs and wants should be covered accordingly.
Next, we have a few ways that you can address your investments during the coronavirus outbreak while still adhering to your chosen budgeting method and ensuring a healthy financial future.
While we’re all constantly refreshing news websites to find the latest COVID update, it’s easy to see how our budgets could fall to the wayside. First, remember to be patient and forgiving and don’t be too hard on yourself if some of your daily obligations have fallen a bit behind. We’re all learning as we go and none of us have ever experienced anything like coronavirus before. You may have established your preferred budgeting system months ago but does the breakdown still work for you when times are tough?
Investments are important, but as you can see from the 50/20/30 split, there are other things that need more of your attention. If you’re behind on your bills, rent or mortgage payments, need groceries, or you’re still paying off debt, consider splitting the 20% for investments in half. This way, you can allocate 10% to investments and the other 10% to catching up in other categories or making additional debt payments. As always, needs should come first, so if splitting it in half isn’t enough, consider putting the investments on hold for a month or two until you feel comfortably caught up.
Setting up a rainy-day fund or adding to an emergency savings fund is an investment you’re making in your future self. If the coronavirus has taught us anything, it’s that we don’t always know what’s going to happen and some situations are entirely out of our control. Preparing for tough financial times can be very beneficial when they inevitably come. But what is the difference between funding a rainy-day and emergency savings?
A rainy-day fund works for more short-term coverage and lands at an average of around $2,500, while the recommendation for emergency savings funds is at least three months’ worth of living expenses, averaging between $10,000 and $50,000. Even before COVID-19 struck and changed the financial status of millions of Americans, only 40% of American adults could afford to pay for an unexpected expense totaling $1,000. Giving yourself a financial cushion can help keep your expenses covered if an ill-timed layoff, roof leak, or car repair need.
Times may be tough now but they won’t be that way forever. If your needs, wants, and emergencies are thoroughly covered, and you’ve got money left over, investing in your future is an excellent idea. Previous generations have hit retirement age and found that they had minimal savings to help them through. We can learn from this and start getting ready now. It’s never too early to contribute to a healthy financial future, especially if you have a certain age in mind that you’d like to stop working entirely.
There are many options to consider when investing. The stock market can be a good choice for some investors, but a 401(k) or IRA are often more sustainable options with lower risk over time. Deciding where to invest can be a bit overwhelming, but thankfully there are many websites and credible investment organizations that can help you to narrow down your options and make the decision best for you.
Traditional retirement age starts around 65 and there are several free, online retirement calculators that will help you determine how much you’ll need to have saved to retire comfortably. If you plan on retiring earlier or later, just adjust the age accordingly. Once you have a set amount to aim for, it becomes easier to allocate funds to your investments. It may also help to print out the results from the calculation and post them on a wall or the refrigerator where you’ll see the information regularly. Visuals can be really helpful when long-term goals feel far away.