Financial toughness is one thing you need to work on coming into the new year. Coming from a year that had everyone in a loop, you need to make sure that your finances are resilient enough to get you through the year. The goal is that even if another pandemic does come around next year, you will be confident with your finances.
There is no doubt that the events this past year have left valuable financial lessons for a lot of people. What started out as a medical concern soon rippled out into the economy. As the nation’s healthcare facilities started to get overwhelmed, people were asked to stay at home to prevent further spread of the virus.
This put the economy to the ultimate test as businesses were forced to close down and employees were on furlough or worse, let go. Financial toughness was now the name of the game while everyone tried their best to adjust. Businesses that remained open needed to find a way to stay afloat or break even to keep their doors open. Consumers had to do the same as well.
3 signs you’re financially tough and can survive a pandemic
A lot of adjustments had to be made from personal finance management to debt payment. As the year comes to a close, you need to make sure that you are ready for the new year ahead. Here are some of the signs that your finances can take on another emergency this year.
You have enough emergency funds
The pandemic was able to underscore one of the most essential financial tools people need – their emergency fund. If you lost your job this year or were asked to put in fewer hours, your emergency fund started to take on a bigger role. You begin to dip into it to make sure that you cover all the basic needs of your family. You also use it to help you stay out of debt and meet all your payment obligations.
If you are going to start the new year with a strong reserve fund, you are already in a good position to take on another emergency in the coming year. It is also a good idea to have a separate account for your emergency fund and rainy day fund. Having a rainy day fund will help you preserve your emergency fund for the big expenses keeping it safe and intact.
Your debts are manageable
Financial toughness can also be measured with how much debt you are carrying over into the new year. There is no doubt that best is already a big part of society at present. A large number of people have some sort of debt under their name. It can be a credit card payment, student loan debt from college, or even a personal loan they had to take out.
You might even have a mortgage loan which is easily one of the biggest balances you are trying to pay off. If you are coming into the new year with manageable payments, you are already on the right track. Remember that manageable does not mean that you do not have any payments to make. It simply means that you are not way in over your head with all the payments you need to meet every month.
At the very least, your payments should not be more than what you make in a month. You need to make sure that you get to pay for your monthly expenses while being able to set aside some for savings. It can be for your retirement, emergency fund, or even for your child’s college fund. If you are able to do this coming into the new year, your finances are in a good position.
You have multiple sources of income
One of the best markers for financial toughness is having several sources of income. Just like how you try and spread out your investments over several accounts, the same goes with your source of income. The idea is that if one source of income is impacted, you still have funds coming in from other sources. If you lost your job during the pandemic but you had several sources of income, you still have money coming in.
If you are coming into the new year with several sources of income, you have a better chance of surviving another pandemic. Forbes shares that freelancing can help you earn an extra income remotely and safely. This is even better when you have a side hustle that revolves around your hobby. You work on something you already love doing. It might not even feel like working at all. The best part is you earn money while doing it.
Tips to improve your financial toughness
If you feel like you still need to strengthen your finances for the coming year, here are a few things you can focus on to help you prepare for the new year.
Boost your emergency funds
The pandemic has only underscored the importance of having some money reserved for emergency use. This is what you will use to help you cover your income in times of emergency. The emergency fund will allow you to continue buying all the necessities you need at home and even make payments on your debt obligations.
When you have an emergency fund, you will also have the chance to steer clear of debt. This is because you do not have to rely on maxing out your credit or taking out a high-interest loan just to get by. Your emergency fund will cover your expenses while you find a way to get your income back up to what it used to.
Live below your means
One of the best decisions you can make to help you achieve financial toughness for the coming year is choosing to live below your means. A frugal lifestyle has always been a great way to help you free up some funds in your budget.
The first step in a frugal lifestyle is having a comprehensive budget. This lets you know your baseline expenses. You then find a way to lower your spending every month. It can be cooking your own meals at home or simply using a bike to get to and from work. Use your creativity to identify ways to save money.
Increase your investments
You can also look at your investments and find a way to increase and diversify them for the coming year. Remember that with any other investment, it always carries certain risks. As you get older, it is a good idea to lower your risk exposure to help you conserve what you have earned over time. But this does not mean you should stop investing anymore.
You can increase your investments for the coming year but manage your risk when you do. Everyone is coming off a very tough year and investing could be far from your mind. But if you do, your future self will thank you for it. Investing now means you can take advantage of compound interest to help you reach your goals for the future.
Have a back-up plan
No one really has a definitive answer on what tomorrow can bring. The new year can bring in bigger and better opportunities or another health crisis. You cannot control what the year brings but you can always prepare. Always have a back-up plan especially when it comes to your finances. Your emergency fund is just a part of that.
Even before you need it, try creating a bare-bones budget as early as now. Then try to use it just to see how it turns out. You can also start learning new skills to help you expand your job opportunities in the future. This can help you especially when the industry you work in is affected. New skills mean you will be able to cast a wider net when looking for a new job.
Financial toughness is something you need to look into as the new year is about to start. This will help you overcome the financial challenges that might come your way in 2021.